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GM's bonds hit record low after quarterly loss

Fri Aug 1, 2008 9:38am EDT

http://www.reuters.com/article/2008/08/01/us-gm-bonds-marketaxess-idUSN0142398720080801

NEW YORK - General Motors Corp's benchmark long bonds traded at a record low on Friday after the automaker posted a worse-than-expected $15.5 billion quarterly loss.

GM's 8.375 percent bonds due in 2033 dipped to 46 cents on the dollar, an all-time low in the institutional market, before bouncing to 47 cents, according to MarketAxess. They closed on Thursday at 49 cents. GM burned through $3.6 billion in cash in the second quarter as it ran down inventory of slower-selling vehicles in its slumping home market. (Reporting by Dena Aubin ; Editing by Theodore d'Afflisio)

Citigroup to be charged by Cuomo, faces SEC probe

Fri Aug 1, 2008 6:25pm EDT

http://www.reuters.com/article/2008/08/01/us-citigroup-subpoenas-idUSWEN718420080801

NEW YORK - New York Attorney General Andrew Cuomo plans to imminently charge Citigroup Inc ( C.N ), accusing it of fraudulently marketing and selling auction-rate securities, and destroying documents that had been subpoenaed.

In a letter Friday to the bank, David Markowitz, chief of the state's investor protection bureau, accused the largest U.S. bank by assets of having "repeatedly and persistently committed fraud" by falsely representing to customers that auction-rate debt was safe, liquid and the equivalent of cash. He also said Citigroup destroyed audiotapes of phone calls on auction-rate debt that were subject to an April 14 subpoena. The bank learned in mid-June about the destruction, but failed to tell Cuomo's office until June 30, the letter said. Any settlement of the five-month investigation would require New York-based Citigroup to buy back the affected debt at face value, pay damages to investors, and incur a "significant penalty" for its misconduct, the letter said. Cuomo's office plans to charge Citigroup under the state's Martin Act, which allows civil or criminal charges. Citigroup did not immediately return several requests for comment. Cuomo sued UBS AG ( UBSN.VX ) on July 24 over auction-rate securities, accusing the Swiss bank of a "multi-billion dollar fraud" in steering customers into the debt. Auction-rate securities have rates that set periodically. The $330 billion market was once considered safe, but part of it remains frozen after a February meltdown in which brokerages abandoned their role as buyers of last resort. Regulators nationwide also are examining auction-rate sales practices at other financial services companies, including Bank of America Corp ( BAC.N ), Merrill Lynch & Co Inc MER.N ( UBSN.VX ) and Wachovia Corp WB.N. Earlier on Friday, Citigroup said in its quarterly report that the U.S. Securities and Exchange Commission has opened a formal probe, which gives it subpoena power, into the sale of auction-rate securities. SEC spokesman Kevin Callahan declined to comment. Citigroup said it also is responding to subpoenas from Massachusetts and Texas over the securities. Citigroup spokeswoman Christina Pretto said the bank is cooperating with the various probes, and has been working with issuers, investors and regulators to create liquidity for holders of illiquid auction-rate debt. Separately, Citigroup said it is cooperating with government and regulatory requests regarding its Falcon fixed-income and its ASTA and MAT municipal arbitrage funds. Citigroup in February provided a $500 million credit line to the Falcon funds, and in March invested $661 million in its Municipal Opportunity funds, which accept investments through ASTA and MAT. It moved the Falcon and Municipal Opportunity funds onto its balance sheet because of these commitments. The bank's shares closed Friday up 18 cents at $18.87 on the New York Stock Exchange. They have fallen 36 percent this year. (Additional reporting by Kim Dixon ; Editing by Gerald E. McCormick and Carol Bishopric)

GM July sales drop 27 percent as trucks plummet

Fri Aug 1, 2008 2:10pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-gm-idUSWNAB446720080801

DETROIT - General Motors Corp ( GM.N ) on Friday reported a 27 percent drop in U.S. July vehicle sales, hurt by high fuel prices, a challenging U.S. economy and shortages of compact cars.

Adjusting for the two extra selling days last month compared to the same month a year earlier, GM reported a sales decline of 32.4 percent. Overall, GM sales of light trucks in July declined 40 percent while car sales fell 19 percent on an adjusted basis. (Reporting by Poornima Gupta , editing by Phil Berlowitz)

Slices of U.S. jobs report signal recession

Fri Aug 1, 2008 3:35pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-economy-jobs-recession-idUSN0148988120080801

WASHINGTON - The U.S. economy shed jobs for seven straight months through July, something that has happened only eight other times since the end of the World War Two. Every other instance occurred during a recession.

While the overall loss of 51,000 jobs reported in Friday's U.S. employment report was not as gruesome as many on Wall Street had feared, the underlying data shows patterns consistent with previous periods of economic contraction. "After the November elections, the National Bureau of Economic Research will tell us what we ... already know -- the U.S. economy currently is in a recession," said Paul Kasriel, director of economic research at Northern Trust in Chicago. Keith Hall, the head of the U.S. Bureau of Labor Statistics, said the jobs report alone did not prove a recession, but acknowledged that in the last two such periods, there were eight months in a row of job losses. What makes the data somewhat perplexing is that it does not match up with some other indicators. Just 90 minutes after the Labor Department issued the employment figures, a separate report from the Institute of Supply Management indicated growth in manufacturing jobs for the first time since October. The ISM employment index jumped to 51.9 in July from 43.7 in June. A reading above 50 indicates expansion. That contrasts with the Labor Department's report showing 35,000 factory jobs lost in July. Other figures in the jobs report also looked worrisome. In addition to the seven-month streak of declines, the data showed the range of industries losing jobs was broadening. Only 41.2 percent of industries reported payroll gains for July, the lowest since August 2003, which was during the so-called jobless recovery that followed the 2001 recession. "The job market may not be shrinking by a rapid pace, but the deterioration is slow and steady, consistent with an economy that is in a slow-moving recession," said Jennifer Lee, an economist with BMO Capital Markets. The unemployment rate, which spiked to 5.7 percent from 5.5 percent a month earlier, is up a full percentage point from a year ago. The number of people working part-time because of economic reasons has risen nearly 1.4 million over the year. "An alternative measure of the unemployment rate which counts these part-time workers as underutilized labor stands at 10.3 percent, near the high reached after the last downturn," JPMorgan economist Michael Feroli noted. Northern Trust's Kasriel found another recession signal in an index that measures total work effort -- both the number of workers plus their hours worked. That fell 1.73 percent over the past year, he said. "I do not see any other time since the mid-1960s when the year-over-year change in the index of aggregate hours has gone from a positive reading to down minus 1.73 percent and the economy was not in a recession," he said. "Perhaps things are different this time, but I would bet Ben Stein's money that they are not different," Kasriel added in a reference to the well-known economist and commentator who has been bullish on the U.S. economy. (Additional reporting by Melissa Bland; Editing by Neil Stempleman )

Time Warner says ex-AOL CEO can't join Yahoo board

Fri Aug 1, 2008 4:26pm EDT

http://www.reuters.com/article/2008/08/01/us-yahoo-aol-idUSN0151909820080801

NEW YORK - Time Warner Inc said on Friday a non-compete clause in former AOL Chief Executive Jonathan Miller's contract prevents him from joining Yahoo Inc's board until March 2009.

Yahoo named Miller as a potential board member on July 21, as part of a settlement with activist investor Carl Icahn that averted what had promised to be a bitter proxy battle. A source familiar with the matter said Miller had believed that Time Warner would not oppose him joining Yahoo because top executives at the media company had "greenlit" it, until he was told otherwise on Thursday night. A Time Warner spokesman said the clause had never been waived. "When Jon Miller signed his contract, it said that upon payout of the contract he could not work for a variety of competitors including Yahoo until March 2009," a Time Warner spokesman said. The news comes as Yahoo's shareholders attend its annual meeting to elect a new board of directors. "Yahoo is not happy about this development," said the source, who was not authorized to speak on the record. The latest development could put pressure on Time Warner's ongoing discussions to merge AOL with Yahoo. Yahoo had no immediate comment. Miller declined comment. News of Miller possibly not joining Yahoo's board was first reported by the Los Angeles Times on Friday. (Editing by Phil Berlowitz)

Stressed banks borrow record amount from Fed

Thu Jul 31, 2008 9:05pm EDT

http://www.reuters.com/article/2008/08/01/us-markets-credit-banks-idUSN3163777720080801

NEW YORK - Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year old credit crisis took a persistent toll, while the commercial paper market continued to contract, signaling tough conditions for short term borrowers.

Banks' primary credit borrowings averaged $17.45 billion per day in the latest week, the second straight week this had hit a record and up from $16.38 billion the previous week, Fed data showed on Thursday. "It shows there's a shortage of liquidity in the system," said Christopher Low, chief economist at FTN Financial in New York. Secondary credit the Fed extended, which is usually taken out by banks in need of emergency cash, rose to $89 million in the latest week, from $34 million the week before. Although these numbers are still very small compared with primary credit, "What that tells you is that there's an increasing number of banks that the Fed is classifying as 'unsound' or inadequately capitalized," Low said. Analysts may watch the trend of secondary credit closely, given the travails of U.S. regional and smaller banks and the likelihood that a continued decline in house prices and rise in foreclosures and bad loans will deepen the difficulties of the banking sector for many months or years. Some analysts ascribed the overall rise in demand to use the Fed's short term discount window borrowing facilities to a mix of factors. "I am sure there are troubled banks trying to tap the window," said Michael Feroli, U.S. economist with JPMorgan in New York. But he added: "more and more banks are trying to take advantage of the pure economic advantage of borrowing at a cheap rate and you are seeing a gradual fading away of the stigma of using the discount window." The Fed's main discount rate is 2.25 percent. Meanwhile, the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell $16.0 billion to $1.728 trillion, the lowest level outstanding in two years, from $1.744 trillion the previous week, Federal Reserve data showed on Thursday. "The panic of last year is over. It's more orderly now, but the financial stresses remain and there will be more difficulties to come," said John Canavan, market analyst at research company Stone & McCarthy in Princeton, New Jersey. Part of the overall decline was attributable to asset-backed commercial paper, a subsector that has been eroded by the slide of housing and mortgage-related securities. U.S. asset-backed commercial paper outstanding fell by $6.1 billion after rising $4.7 billion the previous week. U.S. asset-backed commercial paper outstanding declined to a total $743.9 billion in the latest week from $750.0 billion the previous week. "The asset-backed outstanding continues to creep a little lower," Canavan said. "No one is willing to touch the asset-backed commercial paper because people are concerned about the intrinsic value of the underlying issues, mortgage-related securities." Foreign central banks, who own over a quarter of marketable Treasuries, were net buyers of U.S. government bonds in the latest week, but were net sellers of agency securities, Federal Reserve data showed on Thursday. Foreign institutions sold securities from government-sponsored agencies like Fannie Mae FNM.N and Freddie Mac FRE.N, subtracting $2.39 billion from those holdings, which now stand at $981.69 billion. The breakdown showed overseas central banks bought $17.89 billion in Treasury debt, bringing the total to $1.395 trillion. The interbank cost of borrowing three-month dollar funds posted its biggest fall in a month on Thursday, according to the British Bankers' Association, a day after central banks announced more liquidity boosting measures. The London 3-month dollar-denominated interbank offered rate was fixed at 2.79125 percent USD3MFSR= versus 2.80063 percent the previous session. U.S. primary dealers borrowed a modest $3 million from the U.S. central bank's Primary Dealer Credit Facility in the latest week, versus an average of zero per day the week before. Dealers took $28.1 billion in Treasuries of the $50 billion the Federal Reserve offered at its weekly Term Securities Lending Facility auction on Thursday, not covering the total amount on offer, but still a sign of hefty demand. Cash strapped financial institutions can convert the Treasuries temporarily into short term cash loans in the repurchase market in order to shore up balance sheets depleted by the credit crisis. (Additional reporting by Richard Leong , Chris Reese ) (Reporting by John Parry;)

NEC posts biggest fall in 21 yrs on profit slump

Fri Aug 1, 2008 5:00am EDT

http://www.reuters.com/article/2008/08/01/us-nec-shares-idUST23997120080801

TOKYO - Shares of NEC Corp ( 6701.T ) tumbled 16.5 percent on Friday, suffering their biggest one-day fall in 21 years after the electronics maker posted a sharp fall in profit on sluggish sales of network equipment and mobile phones.

NEC was the hardest hit amid a broad sell-off in Japan's electronics sector, which is struggling to maintain profit margins as competition with overseas rivals drives product prices lower and the global economy slows. Shares of Sharp Corp ( 6753.T ) tumbled 5 percent after it reported a 14 percent fall in profit, also hit by weak sales of mobile phones. Pioneer Corp ( 6773.T ) lost nearly 10 percent after it fell into the red on slower flat TV sales. NEC posted a 64 percent fall in operating profit for the April-June quarter, hurt by slowing sales of cellphones and a downturn at its Pasolink microwave communications system business amid intensifying competition with Chinese competitors. Deutsche Bank cut its rating on NEC to "sell" from "hold" while UBS lowered its rating to "neutral" from "buy". In a note to clients, Deutsche Bank analyst Takeo Miyamoto said that "...risks are rising in cell phone handsets, on which NEC has pinned comeback hopes, and Pasolink, the main driver of earnings to date." Shares of NEC closed at a three-month low of 495 yen, wiping out about $1.8 billion in market value. It was the stock's biggest one-day drop since October 20, 1987, when it slid 17 percent in the wake of the "Black Monday" global stock market crash. The benchmark Nikkei average .N225 fell 2.1 percent. The selling frenzy on NEC led to a spike in trading volume to about 64 million shares, six times the previous day's level and the highest in more than two years. (Reporting by Mayumi Negishi ; Editing by Hugh Lawson )

GM CDS hit record, price in 90 pct default risk

Fri Aug 1, 2008 2:39pm EDT

http://www.reuters.com/article/2008/08/01/us-generalmotors-swaps-idUSN0131769320080801

NEW YORK - Credit investors are pricing in a 90 percent chance that General Motors Corp may default on its debt in the coming five years, after the automaker on Friday posted a $15.5 billion loss for the second quarter.

The No. 1 U.S. automaker burned through $3.6 billion in cash in the quarter as it cut factory output by 27 percent in response to an accelerating downturn in its home market that has hammered sales of trucks and sports utility vehicles. GM executives declined to say how much cash the automaker expects to burn in the second half of this year but said it needs a minimum of $11 billion to $14 billion to run its global operations. For details click on. Credit default swaps costs jumped to a record of 45.5 percent the sum insured as an upfront payment, from 42 percent on Thursday, in addition to 500 basis point annual payments, according to Phoenix Partners Group. This means it would cost $4.55 million to insure $10 million in debt for five years, plus an additional $500,000 each year. A cost of 45 percent upfront implies a 90 percent default probability, said Gary Kelly, director of research at Tradition Asiel Securities in New York. "From a credit market perspective GM is going to have to restructure or default," he said. The automaker's 8.375 percent bonds due in 2033 dipped to 46 cents on the dollar, an all-time low in the institutional market, before bouncing to 47.5 cents, according to MarketAxess. They closed on Thursday at 49 cents. GM ended the second quarter with $21 billion in cash and $5 billion in undrawn credit. It has since drawn down a revolving loan facility by $1 billion. COST CHALLENGES Shelly Lombard, analyst at independent research company Gimme Credit, said she sees a 25 percent chance GM could default in the next two years. "They are blowing through $3 billion of cash a quarter and the next two quarters are going to be critical to see if they can stem the tide," she said. "If they can get their costs in so that they won't go through their cash quite as fast." GM said its North American sales fell 20 percent, but sales increased by 10 percent outside of North America. "They are selling cars over there, but profit margins are not enough to compensate for the amount of money they are losing in North America. I did not expect them to lose so much on the operating side," Lombard said. Standard & Poor's on Thursday cut its ratings on GM deeper into junk territory, but said it views the automaker's liquidity as "adequate for now." The rating agency cut GM's senior unsecured debt one notch to "B-minus," six steps below investment grade, and gave it a negative outlook, indicating its likely direction over the next two years. The negative outlook "reflects our expectation that current liquidity levels could be almost halved by cash losses in 2008 and 2009, sinking to dangerously low levels if management's cash-saving actions or capital-raising activities fall well short of plan," S&P said in a statement. (Reporting by Karen Brettell and Anastasija Johnson; Editing by Leslie Adler)

U.S. July auto sales spiral to 16-year low

Fri Aug 1, 2008 7:06pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-idUSN0143728620080801

DETROIT - U.S. auto sales plunged to a 16-year-low in July, led by a 27 percent drop at General Motors Corp ( GM.N ), as high gas prices and tight credit sent the industry into a tailspin.

The sales decline was steeper than analysts had expected and showed an accelerating downturn in the world's largest vehicle market as Americans abandoned the SUVs and trucks they had favored for more than a decade. July sales marked the ninth straight month of declining sales in the U.S. auto market, making it the longest such downturn since the 2001 recession. Automakers struggled to meet demand for fuel-efficient small cars and hybrids, only to see those gains wiped out by a 25 percent drop in sales of light trucks in July. Ford Motor Co ( F.N ) sales were down 15 percent. Toyota's sales fell 12 percent. Nissan Motor Co Ltd ( 7201.T ) surprised investors by posting an 8.5 percent increase. Honda Motor Co Ltd ( 7267.T ) reported a weaker-than-expected 1.6 percent drop in sales, but outsold Chrysler for the third straight month. The results cast a pall over Detroit's struggling automakers as they grapple with diminished cash holdings and the costs of a downturn now widely expected to run into 2009. GM's showing came as the No. 1 U.S. automaker posted a $15.5 billion quarterly loss, attributable to a combination of meager sales and writedowns in its auto finance business. U.S. auto sales fell to a seasonally adjusted, annualized rate of 12.55 million units in July, the worst showing since April 1992. "We are in a period that feels a lot like 1991 and 1992 and we had similar issues with a recession at that point in time, high oil prices and fear of oil supply shortages," said GM's sales analyst Mike DiGiovanni. TOUGH ROAD AHEAD Auto executives and analysts were unwilling to call a bottom for sales. They noted there were signs that tougher credit markets and a pullback from cheaper vehicle lease financing could weigh on sales for months to come. Chrysler LLC, which boosted incentives on its vehicles in August, has completely abandoned leases. GM and Ford have tightened consumer credit terms. "For the next several months, and I would say for the next year, the credit situation that customers are facing in dealerships will take center stage," Ford's sales and marketing chief Jim Farley said. The sudden shift in buying patterns toward passenger cars hit the Detroit-based automakers hard. As a group, the market share of GM, Ford and Chrysler dropped to 43 percent in July. Light truck sales consistently outpaced car sales in the U.S. market for the decade between 1997 and 2007 when rising gas prices began to reverse the trend. But in July, cars sales outpaced truck sales by 10 percentage points at a 55 percent to 45 percent ratio. That shift has put additional pressure on earnings as larger vehicles have had higher profit margins. "The next two months will be very challenging," Edmunds analyst Jesse Toprak said. "The marketplace is changing rapidly and automakers that are more flexible in their production will fare better." Toprak estimated that automakers had stepped up sales incentives by an average of 4 percent in July to $2,611 on the average vehicle. That marked the most aggressive discounting of the year for both U.S. and Japanese automakers, he said. Discounts on large SUVs ran as high as $6,199 per vehicle, followed by large trucks at $5,424, according to Edmunds, which tracks incentives including rebates and financing. (Additional reporting by Kevin Krolicki , David Bailey and Soyoung Kim , editing by Gerald E. McCormick, Leslie Gevirtz )

Stocks dip on GM loss, oil, jobs data

Fri Aug 1, 2008 5:12pm EDT

http://www.reuters.com/article/2008/08/01/us-markets-stocks-idUSL2219159120080801

NEW YORK - U.S. stocks fell on Friday as a $15.5 billion quarterly loss from General Motors ( GM.N ) and a rise in oil prices added to fears the economy could slip into recession and concerns about corporate earnings.

A government report showing U.S. employers cut jobs for the seventh straight month in July added to market worries, though the decline in payrolls was not as severe as had been feared. The report also showed the jobless rate jumped to its highest level in four years. General Motors' ( GM.N ) second-quarter loss was the latest example of how rising oil prices are hurting consumer spending. Its shares slumped 7.6 percent to $10.23 and weighed on the Dow and S&P. Sliding global metal prices and weak manufacturing data around the world knocked the shares of aluminum maker Alcoa ( AA.N ) nearly 5 percent lower. Shares of Caterpillar ( CAT.N ), the mining and heavy equipment maker, fell 2 percent. The two were the top drags on the Dow. Crude oil CLc1> settled up $1.02 at $125.10 a barrel in New York after Israeli Deputy Prime Minister Shaul Mofaz said Iran was heading toward a major breakthrough in its nuclear program, fanning concerns of a potential confrontation that could disrupt supply from the OPEC nation. "The stock market is down because oil went back up," said Frederic Dickson, senior vice president and market strategist at D.A. Davidson & Co in Lake Oswego, Oregon. "We have more market tension with oil than with the employment report." The Dow Jones industrial average .DJI was down 51.70 points, or 0.45 percent, at 11,326.32. The Standard & Poor's 500 Index .SPX was down 7.07 points, or 0.56 percent, at 1,260.31. The Nasdaq Composite Index .IXIC was down 14.59 points, or 0.63 percent, at 2,310.96. For the week, the Dow ended down 0.4 percent, the S&P closed up 0.2 percent and the Nasdaq ended flat. "Add up the scorecard and it says the economy is neither collapsing nor recovering rapidly," said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. Caterpillar, the maker of bulldozers and excavators, fell 2 percent to $68.14 on the New York Stock Exchange, while Alcoa shares slid to $32.14, down 4.8 percent. On Nasdaq, the biggest drag came from biotechnology company Biogen ( BIIB.O ), whose stock slid more than 28 percent to $50.01 on renewed safety concerns about its multiple sclerosis drug. Two new brain disease cases were detected in patients taking Tysabri, which Biogen jointly manufactures with its Irish partner Elan ( ELN.I )( ELN.N ) <ID:nL1273893>. Shares of Sun Microsystems JAVA.O, the world's No. 4 business computer maker, lost 12.3 percent to $9.32 after the company warned about its business outlook. The losses all came on another day of worrisome economic data. The nonfarm payrolls report showed employers cut 51,000 jobs in July. Some investors were heartened because that was fewer than the 75,000 loss forecast by analysts. But it still marked the seventh straight month of job losses. "The employment data was OK when compared to what some people had feared but does reiterate that the economy is certainly in a jobs recession," said Jordan Posner, portfolio manager at Matrix Asset Advisors in New York. The unemployment rate also rose to 5.7 percent, a four-year high, from 5.5 percent in June. Trading volume was light on the New York Stock Exchange, with about 1.22 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion. About 2.14 billion shares were traded traded on the Nasdaq, a just below last year's daily average of 2.17 billion. Advancing stocks roughly equaled declining ones on both the NYSE and the Nasdaq. (Additional reporting by Ellis Mnyandu ; Editing by Leslie Adler)

BA profit collapses on dire trading environment

Fri Aug 1, 2008 6:14am EDT

http://www.reuters.com/article/2008/08/01/us-britishairways-idUSWLA739920080801

LONDON - British Airways's BAY.L profit collapsed in the first quarter as high oil prices, an economic slowdown and weak consumer confidence combined in what the airline called the worst trading conditions it had ever experienced.

The British carrier reduced its annual revenue growth target to 3 percent from 4 percent previously and said it was focused on "achieving a small profit in the current financial year" and sustainable profitability in the medium and long-term. BA now plans to raise ticket prices to recoup losses from a planned 3 percent reduction in winter capacity and spiraling oil prices. Although BA said it had "mitigated the impact" of rising bills, its fuel costs rose 49 percent to 706 million pounds during the period as the price of a barrel of London Brent crude continues to hover around the $123 mark. BA said its annual fuel bill would likely top 3 billion pounds. BA said it is now spending upwards of 8 million pounds a day to keep its planes in the air and will axe routes and raise fares to cope with the economic turmoil hitting the industry. "This is the worst trading environment the industry has ever faced and fares are likely to go up as we reduce some winter capacity and cope with unprecedented oil prices but we won't be grounding any aircraft," CEO Willie Walsh told reporters on a conference call. Profit before tax for the three months to end-June plunged by 88 percent to 37 million pounds from 298 million pounds in Q1 last year, missing an average forecast of 49 million pounds supplied by BA. Analysts' forecasts for pretax profit ranged from 16 million pounds to 87 million. The group's operating profit fell to 35 million pounds from 255 million pounds during the same period last year, missing the average analyst forecast of 51 million pounds. Shares in BA, which have fallen almost 20 percent since the start of the year, were down 1.1 percent at 253 pence at 0805 GMT, valuing the company at around 2.87 billion pounds. Blue Oar Securities analyst Douglas McNeill said BA had delivered "awful numbers" and a "grim" outlook, adding he would likely reduce his forecasts on the airline. Walsh confirmed talks with Spanish carrier Iberia IBLA.MC about a potential all-share merger are underway but said it was "too early to say what impact it will have on the business in terms of jobs." The results are the first full quarter to include operations at Heathrow's new BA-only Terminal Five. BA said that more than six million passengers had traveled through the terminal since it opened for business in late March and that it was going "from strength to strength". Having revised its capital expenditure plans, BA has ordered six new Boeing ( BA.N ) 777-300ER aircraft for delivery in early 2010. "They are 23 percent more fuel efficient than the Boeing 747-400 and give us additional flexibility in the long-haul fleet, said Walsh." (Editing by David Cowell)

FCC orders Comcast to modify network management

Fri Aug 1, 2008 6:49pm EDT

http://www.reuters.com/article/2008/08/01/us-comcast-fcc-idUSWAT00987220080801

WASHINGTON - Comcast Corp has been ordered to change how it manages its broadband network after U.S. communications regulators concluded some of its tactics unreasonably restrict Internet users who share movies and other material.

In a precedent-setting decision, the five-member Federal Communications Commission voted 3-2 to uphold a complaint accusing Comcast of violating the FCC's open-Internet principles by improperly hindering peer-to-peer traffic. "Subscribers should be able to go where they want, when they want, and generally use the Internet in any legal means," FCC Chairman Kevin Martin said in a statement. Comcast said it was disappointed by the decision and was considering all its "legal options." The ruling by the FCC does not include any fines against Comcast. But it requires the company to cease impeding peer-to-peer applications, to tell the FCC how the practice has been used, and to notify customers about other network management practices it adopts in the future. The complaint against Comcast was filed by consumer groups who said the company had blocked file-sharing services, such as BitTorrent, that distribute TV shows and movies. The case has become a flash point for a growing debate over a concept known as "network neutrality," which pits open-Internet advocates against some Internet service providers, who say they need to take reasonable steps to manage ever-growing traffic on their networks for the good of all users. RETURN TO SENDER Comcast has said its network management practices were a reasonable choice and has argued that the FCC does not have the authority to enforce its open-Internet policy. Martin likened Comcast's network management to "the post office opening your mail, deciding they didn't want to bother delivering it, and hiding that fact by sending it back to you stamped 'address unknown -- return to sender'." Martin said the technique ran afoul of the FCC because it was too sweeping and was not disclosed to customers. He said Comcast's justification for using it -- that it is needed to manage network congestion -- did not add up. Martin said he was especially troubled because the file-sharing targeted by Comcast was a potential competitive threat to the company's own video services. He said that if the FCC failed to take action in the Comcast case, it could provoke lawmakers in Congress to slap even more explicit rules on broadband providers. Rival network operators Verizon and AT&T issued statements immediately after the vote saying the FCC's action showed that there is no need for Congress to intervene. "We have argued repeatedly that there is no need for federal legislation in this area, and today's FCC action proves that point," AT&T senior executive vice president Jim Cicconi said in a statement. Joining Martin to uphold the complaint were the FCC's two Democratic commissioners, Michael Copps and Jonathan Adelstein. However, the decision drew sharp dissents from Martin's two fellow Republicans, Robert McDowell and Deborah Taylor Tate. They said it was overly intrusive, and worried that it might inhibit broadband providers from cracking down on illegal content like child pornography and pirated material. McDowell and Tate said the agency should have allowed Comcast and its critics to iron out their dispute without intervention by the government. They noted that Comcast had already reached an agreement with critics to change the way it manages its network and cooperate with BitTorrent and others. "For the first time, today our government is choosing regulation over collaboration when it comes to Internet governance," McDowell said. "The (FCC) majority has thrust politicians and bureaucrats into engineering decisions." (Reporting by Peter Kaplan, editing by Tim Dobbyn)

Wal-Mart warns managers about labor bill

Fri Aug 1, 2008 7:57pm EDT

http://www.reuters.com/article/2008/08/01/us-walmart-democrats-idUSN0142528820080801

NEW YORK - Wal-Mart Stores Inc said on Friday it has warned U.S. store managers in recent weeks about the possible consequences of a labor-friendly bill backed by Democratic presidential hopeful Barack Obama that would make it easier for workers to form unions.

But the retailer, which has kept its U.S. stores free of unions, stressed it was not telling employees how to vote. The Wall Street Journal reported that about a dozen employees who attended meetings in seven states said executives had told them that unionization could force Wal-Mart to cut jobs as labor costs rise, and that employees would have to pay hefty union dues and get nothing in return. The Journal said Wal-Mart human-resources managers who run the meetings do not specifically tell attendees how to vote in November's presidential election, but they make it clear that voting for Obama would be tantamount to inviting unions in. "If anyone representing Wal-Mart gave the impression we were telling associates how to vote, they were wrong and acting without approval," Wal-Mart spokesman David Tovar said. Wal-Mart opposes proposed legislation called the Employee Free Choice Act that would make it easier for workers to unionize, by signing a card rather than holding a vote. Obama, a co-sponsor of the original bill, has called for passage of the act. Last June, presumptive Republican presidential nominee John McCain voted against it. "We believe EFCA is a bad bill and we have been on record as opposing it for some time," Tovar said. "We feel educating our associates about the bill is the right thing to do." Wal-Mart has long been the target of union-backed groups that criticize the retailer for everything from its pay practices to its health care benefits. News of the store manager meetings drew the ire of Wal-Mart critic groups Wal-Mart Watch and WakeUpWalMart.com, as well as the AFL-CIO labor federation. "Wal-Mart has once again been exposed for what it really is: a corporation that will go to any length to put profits ahead of its workers," Meghan Scott, spokeswoman for WakeUpWalMart.com, said in a statement. "Wal-Mart has talked a lot about changing its ways on health care, the environment and workers rights, but this article shows that all that talk hasn't translated into action," she said. (Reporting by Nicole Maestri ; editing by Ted Kerr )

Yahoo Chairman says Microsoft never made a compelling offer

Fri Aug 1, 2008 1:59pm EDT

http://www.reuters.com/article/2008/08/01/businesspro-yahooo-msft-dc-idUSMAR16467520080801

- Yahoo Inc ( YHOO.O ) Chairman Roy Bostock says there was never any doubt about the position of Yahoo board about its openness to doing a deal with Microsoft.

* Chairman says he cannot understand why Microsoft withdrew its full-scale merger offer * Chairman says "there was never a compelling offer put on the table"

Yahoo chairman defends merger stance at meeting

Fri Aug 1, 2008 5:13pm EDT

http://www.reuters.com/article/2008/08/01/us-yahoo-shareholder-idUSN3127947720080801

SAN JOSE, California - Yahoo Inc tried to soothe angry investors at its annual meeting on Friday, insisting it had been serious about talks to sell itself to Microsoft Corp and that it had good growth prospects in the next three years.

Yahoo's board "called the shots" when discussing Microsoft's proposals, including a $47.5 billion buyout bid as well as attempts to buy Yahoo's Web search business, Chairman Roy Bostock said. There was never any doubt that directors were open to a deal with Microsoft, Bostock said, adding he could not understand why the software maker withdrew its full takeover offer. "There was never a compelling offer put on the table," Bostock said at the shareholder meeting at a hotel in San Jose, California. "That never occurred in this process." A Microsoft spokesman disputed Bostock's version of events, saying "Yahoo is attempting to rewrite history yet again." Yahoo shareholders criticized the board and management, highlighting the dissatisfaction that has dogged the company's shares since talks about a full Microsoft acquisition broke up in May. "I think you have overpaid in terms of executive compensation, overplayed your hand with Microsoft and overstayed your welcome on the board," said Eric Jackson, a vocal critic of Yahoo's leadership. Jackson is a fund manager with Ironfire Capital in Tampa, Florida, and holder of 250 Yahoo shares, who leads a loose-knit group of 150 other shareholders who collectively own 3.2 million shares. Another investor said he wanted to know how much time Yahoo directors spent doing their jobs to earn their pay. "I'd like to see timesheets posted on the Internet for the work of the directors as well as the executives of the company," said Dirk Neyhart, a retired stockbroker from Berkeley, California, who said he holds less than 1,000 shares of Yahoo. He holds shares in more than 600 companies, he said. 26-HOUR DAYS Bostock said he would be happy to comply, given the considerable time spent negotiating with Microsoft over the last six months. "It's been about 26 hours in the course of a 24-hour day," Bostock said. Nine Yahoo candidates were standing for election to the board on Friday, including Bostock and Chief Executive Jerry Yang, who have borne the brunt of investor anger over the collapsed deal. Yang painted an optimistic view of Yahoo's ability to capture the shift of advertising dollars to the Internet, even as the company lags behind rival Google Inc. The Yahoo co-founder said his company expects 335 million additional Internet users to come online worldwide by 2010, for a total potential audience of 1.56 billion. A majority of these Web users will be in Asia or emerging markets, Yang said, where Yahoo has a strong Web presence. Yahoo agreed in July to expand its board to 11 members after the annual meeting to accommodate activist investor Carl Icahn and two of his candidates. But one of Icahn's potential candidates appeared to drop out of the picture on Friday. Former AOL CEO Jonathan Miller was named as a potential Yahoo director, but AOL's corporate parent Time Warner Inc said on Friday it had not waived a non-compete clause that would bar him from joining Yahoo before March 2009. Yahoo director Robert Kotick, the chief executive of Activision Blizzard Inc, will resign after Friday's meeting to open one board seat. Icahn had demanded that Yahoo offer to sell itself to Microsoft, but agreed to settle for the board seats after the software maker made it clear it no longer would pursue a deal. In a blog post on Thursday, Icahn downplayed the annual meeting's importance and said he would skip it. Yahoo shares fell 9 cents on Friday to $19.80, not far above the $19.18 that they fetched the day before Microsoft made its interest public. Microsoft's last offer for the company would have valued Yahoo at $33 per share. (Additional reporting by Michele Gershberg and Kenneth Li in New York and Anupreeta Das in San Francisco; Editing by Braden Reddall )

Elan, Biogen dive on MS drug safety scare

Fri Aug 1, 2008 3:23pm EDT

http://www.reuters.com/article/2008/08/01/us-elan-idUSL127389320080801

DUBLIN/LONDON - Shares in Irish drugmaker Elan Corp PLC ( ELN.I ) lost half their value on Friday while partner Biogen Idec tumbled 25 percent as renewed safety concerns call into question the future of their multiple sclerosis drug Tysabri.

Elan's shares hit their lowest level since 2005, as a second product setback in a week shattered confidence in its line-up of biotech medicines. Cambridge, Massachusetts-based Biogen Idec plunged to its lowest level since June of 2007. The double whammy leaves Elan's future unclear, although investors said it was not an obvious takeover target. Elan and its U.S. partner Biogen Idec ( BIIB.O ) revealed late on Thursday two new brain disease cases in patients taking their Tysabri multiple sclerosis drug, which has already been pulled from the market once on safety fears. "This is a huge blow to Tysabri," Jack Gorman, an analyst at Davy, which acts as stockbroker to Elan, said in a research note. "Although the risk management program seems to have picked them up quickly, which is good, the impact on neurologist take-up puts our forecasts at serious risk." Second-quarter sales of the product totaled $200 million. The latest slide means shares in Dublin-based Elan have lost more than two thirds of their value this week. The stock slumped 30 percent on Wednesday after disappointing data on an experimental Alzheimer's drug Elan is developing with Wyeth WYE.N. The shares ended down 46 pct at 7.35 euros after a low of 4.00 euros, while Biogen lost 25 percent to $52.72 on the Nasdaq. The news delivered a fresh blow to the Irish stock market which is the world's second worst performing behind Vietnam .VNI over the last 12 months. Elan's slide dragged the Irish Stock Exchange Index .ISEQ 6 percent lower on Friday. Elan had been one of the few gainers this year on a market that has slumped 60 percent since early 2007 and is heavily weighted with banks and construction companies hit by the bursting of Ireland's property bubble. The success of Elan, which recovered from a brush with bankruptcy in 2002, has been linked closely to Tysabri and its Alzheimer's drug. Should both programs go on to deliver as hoped, Elan could be a bargain at current levels -- but the significant risks and Elan's existing alliances may deter predators. "I don't think it is an easy thing that anyone is going to be rushing in making a bid for the company," said Iain Galloway, investment director with Standard Life Investments. NO PLANS TO PULL DRUG Tysabri was withdrawn in 2005 after three patients developed the potentially deadly brain infection progressive multifocal leukoencephalopathy (PML). The drug returned to the market in 2006 with warnings and tougher prescription guidelines. A company spokeswoman said the withdrawal of Tysabri was not under consideration, adding that new cases of PML had always been expected. "The benefit-risk profile of Tysabri remains favorable," she said. Tysabri and bapineuzumab, the Alzheimer's drug under development with Wyeth, accounted for most of the value in analysts' models for Elan -- at least up until this week. Gorman said his sum-of-the-parts $27-32 valuation for the group's U.S. shares attributed $16.50 a share to Alzheimer's, $8.50 to Tysabri and the balance to other operations, including the drug technology unit that Elan is looking to sell or float. That calculation is now under review, with the stock trading at just over $11 in New York. UBS and Credit Suisse analysts cut their price targets for the Dublin-listed shares to 14 from 24 euros and to 16 from 20 euros respectively. Elan and Biogen sought to put the latest brain disease cases in perspective, pointing out that more than 31,800 patients were being treated with Tysabri as of the end of June. The partners hope to get 100,000 patients on therapy by the end of 2010. Goodbody analyst Ian Hunter agreed the number of PML cases was extremely low but said the fact that both cases occurred in patients who had been on the drug for over a year was a concern. (Additional reporting by Jonathan Saul ; Editing by David Cowell, Dave Zimmerman)

U.S. July auto sales at about 12.7 mln annual rate

Fri Aug 1, 2008 4:16pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-saar-idUSN0119878220080801

DETROIT - U.S. auto sales were running at a seasonally adjusted annual rate of about 12.7 million units in July, based on a calculation by Reuters from sales data released on Friday by automakers representing over 80 percent of the market.

The seasonally adjusted annual rate, or SAAR, is a closely tracked indicator of auto industry demand. Sales results included the top six automakers in the U.S. market: General Motors Corp, Toyota Motor Corp, Ford Motor Co, Chrysler LLC, Honda Motor Co Ltd and Nissan Motor Co Ltd. Taken together, the six automakers represented 80.5 percent of the overall U.S. light vehicle sales in June. (Reporting by David Bailey , editing by Leslie Gevirtz)

JPMorgan to set up European HQ at Canary Wharf

Fri Aug 1, 2008 5:29am EDT

http://www.reuters.com/article/2008/08/01/us-britain-jpmorgan-idUSL134154920080801

LONDON - U.S bank JPMorgan ( JPM.N ) said on Friday that it has agreed plans to set up its new European headquarters in London's Canary Wharf financial district.

The proposed building, which will be developed by Canary Wharf Group, will be located at Canary Riverside South and will enable JPMorgan to achieve a long-term ambition to consolidate existing London offices at one site, a statement said. Earlier on Friday, UK real estate investment trust Hammerson ( HMSO.L ) said JPMorgan had pulled out of negotiations to occupy a proposed bespoke building in London's City financial district. (Reporting by Sinead Cruise ; Editing by David Cowell)

Chrysler's July U.S. sales slide 29 percent

Fri Aug 1, 2008 3:42pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-chrysler-idUSWNAB447820080801

DETROIT - Chrysler LLC said on Friday U.S. sales fell 29 percent to 98,109 vehicles, hurt by decline in demand for pickup trucks and SUVs and reductions in fleet sales.

The automaker said it had 409,331 vehicles of inventory, or a 108-day supply, at the end of July. (Reporting by Poornima Gupta , editing by Leslie Gevirtz)

Small Florida bank is 8th U.S. failure this year

Fri Aug 1, 2008 7:58pm EDT

http://www.reuters.com/article/2008/08/01/us-firstpriority-fdic-idUSN0136691620080801

WASHINGTON - Bank regulators closed a small Florida-based bank on Friday, the eighth U.S. bank to fail this year under pressure from a weak economy and a credit crisis precipitated by falling home prices.

The Federal Deposit Insurance Corp said First Priority Bank had $259 million in assets and $227 million in deposits and its failure will cost the federal fund that insures deposits an estimated $72 million. SunTrust Banks Inc ( STI.N ) has agreed to assume the insured deposits of First Priority, whose six branches will reopen Monday as branches of SunTrust Bank. Customers can access their money over the weekend by check, teller machine or debit card, the FDIC said. It is the first bank to fail in Florida since Guaranty National Bank of Tallahassee failed in March 2004, according to the FDIC, which blamed the failure on exposure to the real estate market, predominantly in the construction lending area. Florida is among several states whose housing markets have seen the sharpest declines. The biggest bank failure by far this year is IndyMac IDMC.PK, seized on July 11 with $32 billion in assets and $19 billion in deposits as of March, and the third-largest bank insolvency in U.S. history. The FDIC oversees an industry-funded reserve used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks. The agency also has running tally of problem banks that its examiners closely monitor. At the end of first quarter, 90 institutions were on that list. The FDIC does not name the institutions on the list, which is expected to be updated this month for the second quarter. (Reporting by John Poirier ; Editing by Tim Dobbyn )

Yahoo's board wins big endorsement by shareholders

Fri Aug 1, 2008 6:51pm EDT

http://www.reuters.com/article/2008/08/01/us-yahoo-vote-idUSN0147373220080801

SAN JOSE, California - Yahoo Inc's board of directors received strong backing from shareholders at its annual meeting on Friday, with embattled Chief Executive Jerry Yang winning an 85 percent favorable vote.

Shareholders representing nearly 76 percent of Yahoo's 1.38 billion outstanding shares gave solid favorable votes to all nine of the company's current directors, in what represents a ringing endorsement of their tough stance with Microsoft Corp in this year's talks on a full or partial merger. (Reporting by Eric Auchard ; Editing by Braden Reddall )

Incentives help lift Canada auto sales in July

Fri Aug 1, 2008 7:30pm EDT

http://www.reuters.com/article/2008/08/01/us-autos-canada-sales-idUSN0146057020080801

TORONTO - Canadian auto sales bucked the negative trend in the United States in July, rising 5 percent on the month, and are now up 2.7 percent so far this year.

Automakers sold 149,515 vehicles in Canada in July, nearly canceling out June's 5.7 percent drop, industry figures showed on Friday. The rise came largely on the back of dealer incentives and longer financing terms, which lower monthly payments. "Basic economics says that if you reduce the price of goods than consumers buy more ... and buy more they certainly did in July, and indeed most of the year," Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc wrote in a note. The Canadian market contrasts with the situation in the United States, where July auto sales slumped to their worst showing since April 1992. General Motors of Canada ( GM.N ), Canada's biggest automaker, saw July sales rise 5.2 percent to 33,893 units, with truck sales -- which includes minivans and SUVs -- posting a surprisingly healthy gain. GM's car sales rose 0.8 percent to 16,187, while truck sales jumped 9.7 percent to 17,706. Ford Motor Co. of Canada ( F.N ) sold 18,131 vehicles in the month, down 13.8 percent from a year ago. Car sales tumbled 18.5 percent to 4,617 units, while truck sales fell 12.2 percent to 13,554. Chrysler Canada CBS.UL saw its 23-month winning streak snapped, as sales fell 6.8 percent to 17,818 units. Car sales slipped 1.1 percent to 4,749 units, while truck sales fell 8.7 percent to 13,069 units. Import namebrands, which have traditionally focused on smaller, more fuel efficient vehicles, fared better than the Detroit-based Big Three. Toyota Canada Inc ( 7203.T ), the country's No. 2 automaker, reported record July sales, up 18.3 percent from a year earlier to 21,990 units. The automaker said sales at its Toyota division increased 17.8 percent to 20,663 units, while its luxury Lexus division moved 1,327 vehicles off the lots for a 27.6 percent rise. The company said sales of its hybrid Prius rose by 137 percent over last July. Honda Canada Inc ( 7267.T ) reported record sales as well, up 17 percent over the previous July. The automaker said sales at its Honda division jumped 19 percent to 14,465 units, while sales at its Acura division were unchanged at 1,531 units. Honda Canada said its fuel efficient Accord, Civic and Fit vehicles had a combined year over year increase of 20 percent. (Reporting by John McCrank ; editing by Rob Wilson)

Lehman sounds alarm; commods indices near $300 bln

Fri Aug 1, 2008 4:10pm EDT

http://www.reuters.com/article/2008/08/01/us-commodities-lehman-idUSN0149939520080801

NEW YORK - This year's explosion in commodity investments suggests investors may be overlooking volatility for performance as they pile into index funds that have amassed almost $300 billion, Lehman Brothers said Friday.

"It is important to recognize the limitations inherent in commodities given their cyclicality and high volatility," the investment bank said in a report. Lehman said it was not surprised that the weak dollar, unattractive equity markets and higher inflation expectations had all contributed to this year's phenomenal growth in commodity prices and the indices that track them. "But we also find a potentially alarming degree of past performance-chasing momentum," it said. Crude oil, gold, copper, soybean, corn and wheat futures have hit record highs this year, leading to unprecedented gains for commodity indices such as the Reuters-Jefferies CRB .CRB, the S&P GSCI .SPGSCI and the Dow Jones AIG .DJAIG. The CRB, for instance, recorded its best quarter in 35 years between March and June. But July was also the worst month in 28 years for the index as prices of oil and other key raw materials tumbled from their highs. In a report issued Friday, Lehman estimated assets under management tied to commodity indices at $297 billion. That was up $62 billion from the $235 billion figure it gave during a similar estimate in May. In Friday's report, Lehman said commodity indices had grown by about $98.1 billion in value since January 2006. The $62 billion rise in the last two months represents 63 percent of the two years' growth. "We recognize that indices present an important financial innovation in opening up a previously obscure asset class to a wider pool of investors, helping macroeconomic risk management," Lehman said in Friday's report. "However, investors should not be lulled into a false sense of security by the recent outstanding performance of commodities. Furthermore, commodity indices are somewhat peculiar in that they allow investors a long-term view of commodities through short-term rolling instruments," it said. Commodity indices typically allow investors exposure to markets like oil without having to take delivery of crude barrels. In their simplest form, the indices require investors to roll their positions as contracts come up for delivery. The massive growth in commodity index money this year, which has coincided with record high gasoline and food prices, have led to calls for legislation against excessive speculative activity in commodity markets. Investor groups on the other side of the debate have resisted such moves. "Our analysis suggests that (the) reality is considerably more complex and does not align with either extreme of the debate," Lehman said. "We feel that there is room for further financial innovation in the vehicles available to investors," it said, citing newer commodity indices that limit their impact on near-term prices as one example. (Reporting by Barani Krishnan; editing by Jim Marshall )

Manufacturing activity flat in July: ISM

Fri Aug 1, 2008 12:36pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-economy-manufacturing-idUSWEN718620080801

NEW YORK - U.S. factory activity held up to stand unchanged in July from June, managing to defy forecasts of a contraction and showing inflation pressures moderating, according to a report released on Friday.

The Institute for Supply Management said its index of national factory activity edged down to 50.0 from 50.2 in June. This was above economists' median forecast for a result of 49.3 in July, according to a Reuters poll. The 80 forecasts in the survey ranged from 47.8 to 52.5. An index reading above 50 indicates that the manufacturing economy is expanding. Below that level signals it is contracting, while a result of 50 means there is no change from the previous month, according to the ISM. The ISM manufacturing index was mired below 50 for four consecutive months before June as the economy struggled in the face of a credit crunch brought on by the worst U.S. housing slump since the Great Depression of the 1930s. "While the (index) indicates little to no change has occurred during this period, it would be hard to convince manufacturers who are faced with higher costs and uncertain demand that there is little change taking place," ISM said in a statement. Inflation pressures subsided but remained at a relatively high level. The index for prices paid fell to 88.5 in July from 91.5 in June, which was the highest level since July 1979. Prices paid had been rising since March. The report suggested the manufacturing sector is holding up reasonably well with the help of the export-boosting effects of a weak dollar despite weakness in the overall economy. However, high commodity prices remain a threat even though they dipped, while there was some erosion in the strength of exports as the global economy encountered headwinds. "Manufacturing is not growing and not contracting. There's good news on exports and bad news on domestic demand," said Kevin O'Marah, chief strategy officer at AMR research in Boston, Massachusetts. "But we have a serious inflation threat. The price component of the ISM manufacturing index was staggeringly high for the fourth month in a row." Reaction in financial markets was mixed. Stocks extended their losses on the day. The dollar briefly extended its gains versus the euro. Government bonds, which benefit mostly from signs of economic weakness, initially held onto earlier losses but were last trading narrowly mixed. The manufacturing jobs picture improved, hitting its highest since April 2007 with a rise in the employment index to 51.9 from 43.7. This appeared at odds with a report earlier in the day showing the U.S. unemployment rate hit its highest level in four years during July as employers cut jobs for the seventh month in a row. Exports remained a relatively strong performer, though growth there eased. The exports index fell to 54.0 from 58.5, hitting its lowest since December 2007. (Editing by Richard Satran)

Fannie, Freddie seen boosting loss estimates, again

Fri Aug 1, 2008 7:40pm EDT

http://www.reuters.com/article/2008/08/01/us-fanniemae-freddiemac-outlook-idUSN0159911820080801

NEW YORK - U.S. mortgage market giants, Fannie Mae and Freddie Mac, may report further downgrades to their forecasts for credit losses in their upcoming second-quarter results, starting next week.

The government-sponsored enterprises have already warned investors that credit-related losses, such as payouts on loans they guarantee, would likely rise through 2008 as falling U.S. home prices aggravate defaults on mortgages. But the collapse in the shares of Fannie Mae and Freddie Mac last month, which led to the U.S. Treasury and Congress extending them government support, suggests investors think the companies sorely underestimated the housing market debacle. Since the two companies' May forecasts, the U.S. housing market has continued to deteriorate, leading credit rating agency Standard & Poor's this week to raise its loss estimates on risky loans which, in turn, may extend the vicious cycle of asset write-downs at banks. In the market's view, Fannie Mae and Freddie Mac may not have enough capital to offset losses and maintain their roles as the engines of the U.S. housing market. "They've increased credit loss expectations for the past three quarters and this next one is probably going to be the fourth," Robert Napoli, an analyst at Piper Jaffray in Chicago, said in a recent interview. Freddie Mac, which in May boosted its forecast for total credit losses in 2008 to 16 basis points or 0.16 percent of their total mortgage book, from 12 basis points, plans to report second-quarter results on Wednesday. Fannie Mae in May ratcheted up its expectation for its 2008 credit loss ratio to 13 to 17 basis points, at least double its historical range, from a prior estimate of 11 to 15 basis points to 15 basis points. Fannie had not set a date for its second quarter results by Friday afternoon. Upward revisions to loss forecasts may reignite scrutiny over whether the companies can contain their losses and meet political pressure to expand their support for the housing market. They own or guarantee nearly half of the $12 trillion mortgage market. Doubts about their capital adequacy led to one of the stormiest months ever for the mortgage giants in July, leading the U.S. Treasury to make explicit its already tacit support for the two companies. The housing market legislation passed by Congress in July included provisions for the U.S. Treasury to buy equity capital in the two firms and extend credit to them. Fannie Mae and Freddie Mac have said they have enough capital and their regulator, OFHEO, affirmed their statements. S&P, whose massive downgrades in the ratings of mortgage related assets in the summer of 2007 helped to exacerbate the credit crisis, this week again boosted its assumptions of losses on subprime and so-called "Alt-A" mortgages, which require less documentation and were often handed to borrowers with no equity stake in the property. The new assumptions indicate up to $450 billion, or 85 percent, of "AAA" rated 2006 vintage subprime securities will default, and may lead to a raft of downgrades that pressure financial institutions to face a "new reality," said Vivek Tawadey, head of credit strategy at BNP Paribas in London. The pressure of credit downgrades for companies follows, and in turn may encourage, falling home prices. Through May U.S. house prices had already slumped 18.3 percent since the peak in July 2006, according to S&P/Case Shiller index of 20 metropolitan areas. Deep downgrades on even the safest, "AAA" rated mortgage bonds will lead to more credit tightening due to the need to raise capital reserves and take mark-to-market losses, Tawadey said in a note about "Hurricane Housing" on Friday. "Turbulent market conditions lie ahead, would probably be an understatement" considering the early impact from Merrill Lynch & Co and other institutions that have taken "painful steps," he said. For Fannie Mae and Freddie Mac, further drops in home prices since the first quarter will probably force them to increase reserves by a material amount, said Moshe Orenbuch, an analyst at Credit Suisse in New York. Their reluctance to deem market losses on Alt-A and subprime mortgage bonds they own as "other-than-temporary" will be challenged, he said in a note. The more than 40 percent drop in the shares of Fannie Mae and Freddie Mac last month, and government plans to ensure backstop funding for the companies are indicators that writedowns for the companies are more likely, he said. Analysts surveyed by Thomson Reuters expect Fannie Mae to report a second-quarter loss of $920.8 million, or 78 cents per share, compared with a $1.83 billion profit, or $1.86 a share a year ago. Freddie Mac is seen losing $319 million, or 59 cents a share, compared with net income of $729 million, or 96 cents per share a year earlier. A monthly disclosure from Fannie Mae this week provided another clue on credit performance, according to Thomas Lawler, founder of Lawler Economic & Housing Consulting in Leesburg, Virginia, and a former portfolio manager at the company. Delinquencies on mortgages with "credit enhancement" increased to 3.56 percent in May from 3.33 percent in April, representing a "disproportionate" jump for certain loans, including Alt-A, he said. Fannie Mae has about $70 billion in subprime and Alt-A securities in its portfolio. Freddie Mac is more at risk, with nearly $150 billion in the securities, analysts said. (Additional reporting by Jane Baird in London)

New York threatens fraud charges against Citigroup

Fri Aug 1, 2008 4:13pm EDT

http://www.reuters.com/article/2008/08/01/us-citigroup-cuomo-idUSWEN719120080801

NEW YORK - The office New York Attorney General Andrew Cuomo said on Friday it planned to bring legal action against Citigroup Inc, accusing the bank of fraudulently selling auction-rate securities and destroying documents that had been subpoenaed by the state.

In a letter of intent obtained by Reuters, the state said its five-month probe into auction-rate markets revealed the bank falsely assured customers that these securities were as liquid as cash. The securities have been difficult to sell since credit markets tightened earlier this year. The state wants Citigroup to buy back these securities at par value. A Citigroup spokeswoman declined comment. (Reporting by Joseph A. Giannone )

U.S. July auto sales spiral to 16-year low

Fri Aug 1, 2008 7:30pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-idUSN0149622620080801

DETROIT - U.S. auto sales plunged to a 16-year-low in July, led by a 27 percent drop at General Motors Corp ( GM.N ), as high gas prices and tight credit sent the industry into a tailspin.

The sales decline was steeper than analysts had expected and showed an accelerating downturn in the world's largest vehicle market as Americans abandoned the SUVs and trucks they had favored for more than a decade. July sales marked the ninth straight month of declining sales in the U.S. auto market, making it the longest such downturn since the 2001 recession. Automakers struggled to meet demand for fuel-efficient small cars and hybrids, only to see those gains wiped out by a 25 percent drop in sales of light trucks in July. Ford Motor Co ( F.N ) sales were down 15 percent. Toyota's sales fell 12 percent. Nissan Motor Co Ltd ( 7201.T ) surprised investors by posting an 8.5 percent increase. Honda Motor Co Ltd ( 7267.T ) reported a weaker-than-expected 1.6 percent drop in sales, but outsold Chrysler for the third straight month. The results cast a pall over Detroit's struggling automakers as they grapple with diminished cash holdings and the costs of a downturn now widely expected to run into 2009. GM's showing came as the No. 1 U.S. automaker posted a $15.5 billion quarterly loss, attributable to a combination of meager sales and writedowns in its auto finance business. U.S. auto sales fell to a seasonally adjusted, annualized rate of 12.55 million units in July, the worst showing since April 1992. "We are in a period that feels a lot like 1991 and 1992 and we had similar issues with a recession at that point in time, high oil prices and fear of oil supply shortages," said GM's sales analyst Mike DiGiovanni. TOUGH ROAD AHEAD Auto executives and analysts were unwilling to call a bottom for sales. They noted there were signs that tougher credit markets and a pullback from cheaper vehicle lease financing could weigh on sales for months to come. Chrysler LLC, which boosted incentives on its vehicles in August, has completely abandoned leases. GM and Ford have tightened consumer credit terms. "For the next several months, and I would say for the next year, the credit situation that customers are facing in dealerships will take center stage," Ford's sales and marketing chief Jim Farley said. The sudden shift in buying patterns toward passenger cars hit the Detroit-based automakers hard. As a group, the market share of GM, Ford and Chrysler dropped to 43 percent in July. Light truck sales consistently outpaced car sales in the U.S. market for the decade between 1997 and 2007 when rising gas prices began to reverse the trend. But in July, cars sales outpaced truck sales by 10 percentage points at a 55 percent to 45 percent ratio. That shift has put additional pressure on earnings as larger vehicles have had higher profit margins. "The next two months will be very challenging," Edmunds analyst Jesse Toprak said. "The marketplace is changing rapidly and automakers that are more flexible in their production will fare better." Toprak estimated that automakers had stepped up sales incentives by an average of 4 percent in July to $2,611 on the average vehicle. That marked the most aggressive discounting of the year for both U.S. and Japanese automakers, he said. Discounts on large SUVs ran as high as $6,199 per vehicle, followed by large trucks at $5,424, according to Edmunds, which tracks incentives including rebates and financing. (Additional reporting by Kevin Krolicki , David Bailey and Soyoung Kim , editing by Gerald E. McCormick, Leslie Gevirtz )

Lehman in talks to sell mortgage assets: reports

Fri Aug 1, 2008 7:40pm EDT

http://www.reuters.com/article/2008/08/01/us-lehman-idUSBNG33855920080801

NEW YORK - Lehman Brothers Holdings Inc LEH.N is in talks with prospective buyers, including BlackRock Inc, to sell mortgage assets and other hard-to-value securities, according to reports on Friday.

The reports lifted Lehman's shares by 7.55 percent to $18.65. The New York Post reported Lehman was in preliminary talks to sell some $30 billion of commercial mortgages and other assets to a domestic or foreign entity. The bank might provide funding for the sale, the paper said. Financial news network CNBC reported BlackRock was talking to Lehman about buying mortgages and collateralized debt obligations. A sale would follow a deal earlier this week from Merrill Lynch & Co Inc MER.N, which said on Monday it agreed to sell $30.6 billion of CDOs for 22 cents on the dollar. The New York Post, which did not say how it obtained the information, also said the investment bank may have hired Lazard Ltd ( LAZ.N ) for advice. The exact reason for hiring the boutique advisory firm could not be learned, NY Post said. Lehman spokesman Mark Lane declined to comment on the reports. Lazard spokeswoman Judi Mackey declined to comment, as did BlackRock spokeswoman Bobbie Collins. Wall Street banks have been battered by their exposure to mortgage-backed securities and other risky instruments, which have triggered more than $400 billion of write-downs and credit losses for financial institutions globally. Investors have been speculating about the fate of Lehman, the smallest of the major Wall Street banks, sharply pushing down its share price after the collapse of rival Bear Stearns in March. (Reporting by Dan Wilchins and Jennifer Ablan in New York, Additional reporting by Purwa Naveen Raman and Dinesh Nair in Bangalore; Editing by David Holmes and Braden Reddall )

U.S. July auto sales rate 12.55 mln units: Autodata

Fri Aug 1, 2008 5:43pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-autodata-idUSN0129908220080801

DETROIT - U.S. auto sales fell to an adjusted annualized rate of 12.55 million units in July, the worst showing since April 1992, from 15.48 million units a year earlier, auto industry tracking firm Autodata Corp said on Friday.

The seasonally adjusted annual rate, or SAAR, is a closely tracked indicator of auto industry demand. (Reporting by David Bailey , editing by Leslie Gevirtz)

Honda July U.S. auto sales fall adjusted 9.2 percent

Fri Aug 1, 2008 2:10pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-honda-idUSWNAB446820080801

DETROIT - Honda Motor Co Ltd ( 7267.T ) said on Friday that U.S. auto sales fell an adjusted 9.2 percent in July to 138,744 units as an increase in car sales was more than offset by a sharp decrease in light truck sales.

Honda brand car sales rose an adjusted 6.7 percent to 82,976 vehicles in July, while Honda brand truck sales fell 27.8 percent to 42,940 vehicles. Figures were adjusted for two additional selling days in July compared with a year earlier. (Reporting by David Bailey , editing by Phil Berlowitz)

UBS investment banking unit lawyer in NY probe: report

Thu Jul 31, 2008 10:23pm EDT

http://www.reuters.com/article/2008/08/01/us-ubs-generalcounsel-idUSN3135026920080801

NEW YORK - The general counsel for UBS AG's ( UBSN.VX ) investment banking unit is at the center of a civil probe by New York's attorney-general into the Swiss bank's sales of auction-rate securities, the Wall Street Journal reported.

David Aufhauser is the person described in New York AG Andrew Cuomo's case against UBS as "Executive A," the Journal reported, citing people familiar with the matter. The New York AG's office and UBS were not available immediately for comment. Aufhauser hasn't been named by Cuomo and ultimately bought some securities back, the Journal noted, adding that he has not been charged with any wrongdoing. Aufhauser was formerly the general counsel to the Treasury Department, the Journal reported. Last week, Cuomo sued UBS, accusing it of committing a "multi-billion dollar fraud" by steering clients into auction-rate securities that became impossible to sell once the credit market tightened. The lawsuit said at least seven UBS executives dumped $21 million in auction-rate securities held in personal accounts as the credit market began showing signs of trouble, and that the bank continued to sell those securities. UBS has said it conducted an internal probe of alleged sales of personal holdings of auction-rate debt by its executives and found no wrongdoing. (Reporting by Aarthi Sivaraman ; Editing by Clarence Fernandez)

Nintendo Wii outsells PS3 3-to-1 in Japan in July

Fri Aug 1, 2008 2:47pm EDT

http://www.reuters.com/article/2008/08/01/us-nintendo-sony-idUSTKB00303720080801

TOKYO - Nintendo Co Ltd's 7974.OS Wii video game console outsold Sony Corp's ( 6758.T ) PlayStation 3 by more than 3-to-1 in Japan in July, a game magazine publisher said.

Nintendo sold 171,851 units of the Wii in the four weeks ending July 27, compared with 54,823 units of the PS3, Enterbrain said on Friday. In the handheld game market, Sony sold 256,765 units of its PlayStation Portable in the month, while sales of Nintendo's DS came to 217,639 units, the publisher said. (Reporting by Kiyoshi Takenaka )

Sun Microsystems profit falls, expands buyback

Fri Aug 1, 2008 7:49am EDT

http://www.reuters.com/article/2008/08/01/us-sun-idUSWNAB436820080801

BOSTON - Sun Microsystems Inc JAVA.O, the world's No 4 business computer maker, reported lower quarterly profit on Friday, as it took restructuring charges in the face of a weak U.S. economy.

The company also said its board authorized an additional repurchase of up to $1 billion of Sun's outstanding common stock. The company reported fiscal fourth-quarter net income of $88 million, or 11 cents per share, compared with $329 million, or 36 cents, a year earlier. Revenue fell 1.4 percent to $3.78 billion. Sun reported profit excluding items of 35 cents per share. The results were at the high end of preliminary estimates the company released on July 15. At that time the Santa Clara, California company said it expected fourth-quarter profit excluding items of 25 cents to 35 cents. It also said that it expected to report revenue ranging from $3.73 billion to $3.8 billion. (Reporting by Jim Finkle ; Editing by Derek Caney )

Cablevision shares climb further on upgrades

Fri Aug 1, 2008 1:21pm EDT

http://www.reuters.com/article/2008/08/01/us-cablevision-shares-idUSN0147020220080801

NEW YORK - Shares in Cablevision Systems Corp ( CVC.N ) rose 6 percent on Friday as several Wall Street analysts upgraded the New York cable operator on its strong cash flow prospects and the possibility of asset sales.

Cablevision shares have risen 14 percent since Thursday, when management said on an earnings conference call that it is actively seeking options that could include a special one-time dividend, a large share buyback or a spin-off of cable network unit Rainbow Networks. Analysts at Citigroup and Pali Research both upgraded the stock to 'buy' while Kaufman Bros raised its price target to $28. Analysts were impressed with Cablevision's strong cash flow prospects and its ability to fend off competition for video subscribers from Verizon Communications Inc's ( VZ.N ) FiOS TV. The cable company's free cash flow from continuing operations grew to $250 million during the second quarter as its capital expenditure fell. Citi analyst Jason Bazinet said he now expects Cablevision to generate $2.6 billion in untaxed free cash flow between 2008 and 2010. "This is materially higher than our prior forecast of just $1.1 billion over the same period," he wrote in a note to clients. Bazinet also said the raised free cash flow forecast means that Cablevision could afford to buy back as much as 35 percent of its equity in three years, "paving the away for superior equity returns." Richard Greenfield at Pali Research said Cablevision's management will be considering a "substantial buyback and/or a separation/sale of Rainbow." Greenfield said Cablevision's controlling Dolan family is no longer looking at major acquisitions and is focused on current assets. "This strategic shift combined with far better than expected results, which drive a notable increase in our full year cash flow expectations result in our rating increase to 'buy'" with a $32 target price." Cablevision shares rose by $1.40 to $25.68 in early afternoon trading on the New York Stock Exchange. (Reporting by Yinka Adegoke , editing by Phil Berlowitz)

Bill Gates could buy 20 pct of Republic Services

Fri Aug 1, 2008 7:22pm EDT

http://www.reuters.com/article/2008/08/01/us-gates-cocacola-idUSN0136135120080801

LOS ANGELES - Bill Gates' investment firm may exercise its right to buy up to 20 percent of trash hauler Republic Services Inc's ( RSG.N ) stock, according to a filing on Friday with the U.S. Securities and Exchange Commission.

The firm, Cascade Investment LLC, also disclosed Gates' 20 percent stake in Coca Cola Femsa ( KOFL.MX ) ( KOF.N ), the world's second-largest bottler of Coca-Cola drinks. The filings came a day after Gates asked Waste Management Inc WMI.N to drop its $6.2 billion bid for Republic. Republic already has struck a deal to buy Allied Waste Industries Inc AW.N and rejected Waste Management's offer. In Friday's filing, Cascade said it may use a waiver granted by Republic's board of directors that would allow it to buy up to 20 percent of the Fort Lauderdale, Florida company's stock. As of July 21, Gates owned 15.7 percent of Republic's shares. Cascade Investment LLC, Gates's investment vehicle, and Bill & Melinda Gates Foundation Trust LLC together own about 2.3 percent of Houston-based Waste Management. On Thursday, a letter from Gates' investment arm to Waste Management's chief executive and board called its takeover offer for Republic "ill-timed and poorly conceived." With respect to Coca Cola Femsa, Cascade said in a separate filing that Gates had no plans that would result in a merger or other transaction. Gates also has no plans to buy any additional Coca Cola Femsa shares, the filing said. (Reporting by Nichola Groom ; editing by Carol Bishopric)

Chevron, Statoil, Total join oil earnings boom

Fri Aug 1, 2008 4:59pm EDT

http://www.reuters.com/article/2008/08/01/us-chevron-idUSL148784820080801

NEW YORK - Chevron Corp said on Friday record oil prices drove second-quarter earnings up 11 percent to its highest-ever profit, but weak margins from gasoline production led to a big loss at its refining operations.

Chevron, the second-largest U.S. oil company, joined Norway's StatoilHydro ASA and France's Total SA in posting huge earnings due to soaring crude prices. U.S. oil prices averaged slightly less than $125 a barrel in the quarter, nearly double year-earlier levels. But gasoline prices only rose 25 percent in that same period, resulting in weak profit margins for refining and marketing operations. This latest round of profits ends an earnings season for the major oil companies that was notable for the magnitude of the earnings and generally weak output. The huge hauls also made them targets for environmentalists and politicians, some of whom called for windfall taxes on oil industry profits. Crude prices hit as high as $147 a barrel last month, but since then have dropped precipitously, losing about 15 percent of their value in just over two weeks. Argus Petroleum analyst Phil Weiss said if crude continues to drop, oil companies could push through fatter margins at their refining businesses. Still, he noted exploration and production is the core of their businesses, and a pull-back could mean lower earnings sequentially. "Production is where these companies need to focus," Weiss said, noting output was also weak at Exxon Mobil Corp, the top U.S. oil company, and Royal Dutch Shell Plc, the world's second-largest non-government-controlled oil company. "The industry as a whole is making lots of money and generating lots of cash flow," he said. "None of them are in danger of seeing production dry up, but you start to worry -- are they really going to take all this cash and just buy back stock?" CHEVRON HAULS IN NEARLY $6 BLN Chevron said net income rose to $5.98 billion, or $2.60 a share, from $5.38 billion, or $2.52 a share, last year. The company posted a $734 million loss at its downstream refining and marketing business -- a more than $2 billion swing from its year-earlier profit as weak profit margins and U.S. refinery maintenance hurt results. "Clearly 3 percent lower (gasoline) demand is going to have an effect on downstream numbers at least until we see a real meaningful correction in the feedstock costs," said Lewis Ropp, who helps manage about $60 billion at Barrow, Hanley, Mewhinney & Strauss. Still, Ropp said Chevron's profit was impressive due to the high oil and natural gas prices. "The commodity price just overwhelms any weakness in any other areas," he said. Chevron's production fell about 3 percent to 2.54 million barrels of oil equivalent per day. Chevron said production rose slightly, excluding the effect of contracts that give a higher share of production to host countries as oil prices rise. Exxon Mobil posted the highest-ever quarterly profit by a U.S. company on Thursday, bringing in nearly $11.7 billion, but it still disappointed investors due to weak production. RISING OIL PRICES LIFT ALL OIL PRODUCERS Total said second-quarter net income surged 39 percent to 4.7 billion euros ($7.3 billion) and beat analysts' estimates, thanks to high oil prices and a small increase in production as new fields came onstream. The start-up of a gas field in the UK's North Sea and an offshore oil field off the Republic of Congo helped lift Total's output by 1 percent to 2.353 million barrels of oil equivalent per day. StatoilHydro, the Nordic region's biggest company, reported record second-quarter profit on Friday but missed forecasts in adjusted terms, sending its stock lower. Its quarterly net income rose 36 percent to 18.92 billion crowns ($3.7 billion). Second-quarter production met analysts' average expectations, rising to 1.71 million barrels of oil equivalent per day from 1.67 million a year ago. The company also said it would not make any new investments in Iran, closing off a possible new growth area due to pressure from the United States to isolate the Islamic republic over its nuclear ambitions. Chevron shares fell 25 cents to $84.31 on the New York Stock Exchange on Friday. Shares in Norway's majority state-owned StatoilHydro dropped 6.7 percent to 157.50 crowns. Total shares fell 1.2 percent to 48.79 euros. (Editing by Jeffrey Benkoe and Braden Reddall )

IndyMac Bancorp files for Chapter 7 bankruptcy

Fri Aug 1, 2008 7:58pm EDT

http://www.reuters.com/article/2008/08/01/us-indymac-idUSBNG5428920080801

NEW YORK - IndyMac Bancorp Inc IDMC.PK, once one of the largest U.S. mortgage lenders, has filed for bankruptcy protection, less than three weeks after being seized by federal regulators following a bank run by depositors.

The Pasadena, California-based company filed for Chapter 7 protection on Thursday with the U.S. bankruptcy court in Los Angeles, indicating it plans to liquidate. IndyMac expects the court to appoint a bankruptcy trustee promptly. The filing, which was widely expected, does not affect the status of depositors in IndyMac Federal Bank FSB, the successor to IndyMac's former banking unit after it was taken over by the Federal Deposit Insurance Corp last month. Most deposits at IndyMac Federal Bank are insured up to $100,000. The bank also holds the former bank's mortgages and other loans on its balance sheet, an IndyMac federal spokesman said. The FDIC is trying to sell IndyMac's assets. "Holding companies often go bankrupt once banking units get taken over because most assets and operations are at the bank level," said Ralph "Chip" MacDonald, a partner at Jones Day in Atlanta. "They often file to reorganize, but there was probably no viable plan here." IndyMac Bancorp, the holding company, has between $50 million and $100 million of assets, between $100 million and $500 million of liabilities, and fewer than 50 creditors, according to the bankruptcy filing. Chief Executive Michael Perry, the company's sole remaining employee, said in a court filing he didn't have information normally required to file for bankruptcy protection because the FDIC has sole possession of IndyMac's books and records. Perry has no involvement in IndyMac Federal's operations. The collapse of IndyMac was the largest U.S. banking failure since the 1980s savings-and-loan crisis. Regulators said IndyMac ended March with about $32 billion of assets and about $19 billion of deposits, most of which were insured. IndyMac was the fifth of seven U.S. banking failures this year. FDIC Chairman Sheila Bair said last week she does not expect another failure of IndyMac's size or larger. The FDIC said IndyMac's failure will cost the regulator's $52.8 billion insurance fund about $4 billion to $8 billion. RBC Capital Markets analyst Gerard Cassidy has said there could be 300 U.S. banking failures in the next three years. LOANS PROVED RISKY IndyMac was the ninth-largest U.S. mortgage lender in 2007, according to the newsletter Inside Mortgage Finance. It was also the largest, publicly traded independent mortgage lender other than Countrywide Financial Corp, which was acquired last month by Bank of America Corp ( BAC.N ). Founded in 1985 by Angelo Mozilo and David Loeb, who also founded Countrywide, IndyMac once specialized in "Alt-A" home loans, which often didn't require borrowers to fully document income or assets. It collapsed after defaults mounted, and as tight capital markets caused losses on mortgages it couldn't sell. The seizure came after panicked customers withdrew more than $1.3 billion of deposits over 11 business days. These withdrawals followed comments in late June by U.S. Sen. Charles Schumer questioning IndyMac's survival. Continental Illinois National Bank & Trust Co., a Chicago lender, collapsed in May 1984, and is the largest U.S. banking failure. American Savings & Loan Association of Stockton, California, a September 1988 failure, was about the same size as IndyMac. IndyMac shares fell 46 percent, or 6 cents, to close at 7 cents on the Pink Sheets. They are expected to be worthless. (Additional reporting by Julie Vorman in Bangalore; Editing by Dave Zimmerman and Braden Reddall )

Airbus superjumbo lands at New York's JFK

Fri Aug 1, 2008 7:38pm EDT

http://www.reuters.com/article/2008/08/01/us-airbus-a-idUSN0146656020080801

NEW YORK - Airbus's A380 superjumbo touched down at New York's John F. Kennedy International Airport on Friday, marking the first commercial arrival of the giant, double-decker passenger plane on U.S. soil.

The Emirates aircraft, carrying 489 passengers in varying degrees of luxury, landed smoothly and on time after a 13-1/2-hour flight from Dubai. "Some of us were lucky, we had showers before got off the airplane," Emirates President Tim Clark said, shortly after disembarking, losing no time in marketing the plane's two "shower spas", 14 first-class suites, bar and lounge. The plane, fitted out with lie-flat beds, flat screen televisions and spacious, windowed bathrooms in first and business class, is set to return to Dubai on Friday evening. Emirates, owned by the government of Dubai, is the second airline to put the A380 into service, following Singapore Airlines, which started A380 flights to Sydney in October. The plane, costing $327 million at list prices, did visit New York and Los Angeles in March last year for route-testing purposes, but Friday's flight was the first regularly scheduled arrival of an A380 in the United States. With its huge capacity and relatively fuel-efficient engines, airlines hope the world's biggest passenger jet will be the most cost-effective way of serving high-volume routes linking big cities, especially in light of soaring oil prices. Airbus, part of aerospace group EADS, says an A380 uses up to 20 percent less fuel per seat than a Boeing 747, and claims that when fully loaded and flying long distances it is more fuel efficient, per passenger, than a small family car. The touchdown marks a hard-won victory for Airbus, which spent $10 billion and more than a decade on Europe's largest industrial project, in the face of widespread skepticism. Airbus now has orders for about 200 of the planes from 16 airlines. The company is still struggling to iron out production problems after an 18-month delay in getting the first one out of its Toulouse, France, plant. The delays ended up pushing Airbus into loss and toppling its management, and are still causing political aftershocks in France. OUTSELLING BOEING Despite problems, the plane is outselling its nearest competitor, Boeing Co's revamped, expanded 747-8 jumbo. Boeing, which invented the concept of mass travel over great distances with its original 747 in the 1970s, has sold only 27 passenger 747-8s so far. The plane, known as the Intercontinental, can seat 467 people in a standard layout and is set to fly first in Lufthansa colors in 2010. While the A380's success may be bad news for Boeing, plenty of U.S. suppliers are providing parts and electronics for the superjumbo, including Honeywell International Inc, Spirit AeroSystems Holdings Inc, Rockwell Collins Inc and Goodrich Corp. The engines on the Emirates A380 are also U.S.-made, produced by the Engine Alliance, a joint venture between General Electric Co and Pratt & Whitney, a unit of United Technologies Corp. Emirates, the world's number-seven airline in terms of international passengers, is the biggest buyer of A380s, with 58 on order. After New York, it plans to fly the planes to London from December, then Sydney and Auckland from February. Some 20 airports worldwide can now handle the A380, which needs extra-wide runways for its wingspan and two-tiered facilities for loading passengers. The Port Authority of New York and New Jersey, which runs the region's airports, spent $179 million upgrading JFK facilities to accommodate the A380. Emirates took possession of the plane in a glitzy ceremony in Hamburg on Monday, flying it to Dubai and then to New York. Emirates, along with Gulf-based rivals Qatar Airways and Abu Dhabi-based Etihad Airways, are expanding their fleets and routes even as European and U.S. carriers find themselves pinched by high fuel prices and waning demand. City-state Dubai, part of the United Arab Emirates, hopes the new planes will help transform it into a world business and leisure capital in the next few years, aiming to attract 15 million visitors a year by 2012. (Editing by Gerald E. McCormick and Braden Reddall )

BAE lifts 2008 outlook on demand for armored cars

Fri Aug 1, 2008 5:25am EDT

http://www.reuters.com/article/2008/08/01/us-bae-systems-idUSL15240220080801

LONDON - BAE Systems, Europe's biggest defense company, lifted 2008 earnings expectations on Friday as it beat first-half forecasts, boosted by strong demand for armored vehicles for war zones in Iraq and Afghanistan.

The British firm said earnings before interest, tax and amortization (EBITA) leapt 26 percent to 881 million pounds ($1.75 billion) in the six months to June 30. Excluding a 61 million pound profit on the disposal of its surveillance and attack business, this beat analysts' average forecast of 796 million pounds, according to a company poll. However, a 12 percent rise in sales to 7.75 billion pounds was below some analysts' forecasts, held back by a 19 percent drop in sales at the firm's Programs & Support business due to a transition on its Typhoon fighter jets program. Chief Executive Mike Turner, who will be succeeded by Chief Operating Officer Ian King next month, said demand was driven by a 29.5 percent rise in sales, excluding acquisitions, of armored cars -- particularly mine-resistant ambush-protected (MRAP) vehicles. "We have a lot of long-term business in that sector, but clearly we are benefiting from current operations in Iraq and Afghanistan," he told reporters. BAE, the world's third-biggest defense company, said its order book stood at a record 41.1 billion pounds, up from 31.7 billion the same time last year, and Finance Director George Rose expected analysts to lift their 2008 profit forecasts. Analysts are currently forecasting BAE to report full-year EBITA of 1.76 billion pounds, according to a company poll. Morgan Stanley analysts said BAE shares looked attractive versus their U.S. peers, trading at 12.1 times forecast earnings against a U.S. sector average of 14.8 times. "(But) the lackluster top-line performance coupled with the overhang of the DoJ (U.S. Department of Justice) investigation is likely to somewhat offset the increased guidance," they said, keeping an "equal-weight" rating on BAE shares. PROSPECTS BAE is being investigated in the United States over corruption allegations stemming from a Saudi arms deal in the 1980s. A similar investigation in Britain was halted on fears that Saudi Arabia might stop sharing anti-terrorism intelligence if the probe continued. BAE has always denied any wrongdoing. At 0855 GMT, BAE shares were up 0.8 percent at 453.75 pence, outperforming a 0.6 percent fall on the UK's FTSE-100 index of leading shares and valuing the company at about 16 billion pounds. Turner said BAE was looking to expand its six so-called "home markets" of Australia, Britain, Saudi Arabia, South Africa, Sweden and the United States, with a particular focus on India, and South Korea and Japan. "We see those three in particular as markets we'd like to add to our home market list," he said on a conference call. Turner was also relaxed about the prospects for U.S. defense spending under either U.S. presidential hopeful John McCain or Barack Obama. "The U.S., whether it's McCain or Obama, are determined to maintain national security (and) their role in the world. defense spending will stay at very, very high levels." BAE, which also makes howitzers, bridge-laying vehicles and self-propelled artillery, proposed an interim dividend of 5.8 pence a share, up from 5 pence the same time last year. (Editing by Will Waterman; editing by Sue Thomas)

GM posts $15.5 billion loss as sales sputter

Fri Aug 1, 2008 7:06pm EDT

http://www.reuters.com/article/2008/08/01/us-gm-idUSN3136385320080801

DETROIT - General Motors Corp ( GM.N ) reported a $15.5 billion quarterly loss on Friday as North American sales dropped by 20 percent and resale prices for SUVs coming off lease plunged.

GM shares fell as much as 11 percent in reaction to the automaker's announcement of the much bigger-than-expected quarterly loss, the third-largest in its 100-year history. The No. 1 U.S. automaker burned through $3.6 billion in cash in the quarter as it cut factory output by 27 percent in response to an accelerating downturn in its home market that has hammered sales of its trucks and SUVs. GM executives declined to say how much cash the automaker expects to burn in the second half of this year but said the company needs a minimum of $11 billion to $14 billion to run its global operations. GM ended the second quarter with $21 billion in cash and $5 billion in undrawn credit. It has since drawn down a revolving loan facility by $1 billion. "GM does not face imminent liquidity concerns but we think will need to raise liquidity over the next 12 to 18 months," J.P. Morgan analyst Himanshu Patel said in a note. GM has said it has the cash needed through 2009 even assuming industry-wide U.S. auto sales drop by some 13 percent this year and hold flat next year, as many analysts now expect. Chief Financial Officer Ray Young said GM is on track to free up $15 billion in liquidity with cost-cutting, asset sales and new borrowing under a July plan intended to assure investors that the automaker can ride out the downturn. "The second-half cash flows are fully baked into our plan," Young said on a conference call. But after losses of $51 billion over three years and a drop in its share price to 54-year lows, GM is exposed to the risk of a further slowdown in the U.S. market, analysts said. GM sales figures for July, released after earnings, showed that the market slide gathered momentum at the start the current quarter. July sales dropped 27 percent from a year earlier compared with a 16 percent decline in the first half. "There is a long list of things they need to do," Calyon Securities analyst Mark Warnsman said. "It is all about managing for cash at this point." LOSS DEEPER THAN ESTIMATES GM's net loss was equal to $27.33 per share, compared with a profit of $891 million, or $1.56 per share, a year earlier, reflecting a sharp drop in demand for the light trucks that represent about 60 percent of its sales. The company took $9.1 billion in charges, including $4.4 billion for restructuring and buyouts of U.S. factory workers and $2.8 billion for its exposure to bankrupt former parts unit Delphi Corp DPHIQ.PK. GM also wrote down $1.3 billion of its equity interest in GMAC, its former finance unit. Revenue fell to $38.2 billion from $46.7 billion. Excluding charges, GM lost $11.21 per share. That was more than four times the $2.67 a share that Wall Street analysts expected, as tracked by Reuters Estimates. GM's global auto sales dropped 5 percent and it lost $4 billion on its auto operations before charges as record gas prices sank demand for trucks and SUVs. GM, like rival Ford Motor Co ( F.N ), incurred large losses for light-truck and SUV leases. Under lease contracts, automakers and their finance companies rent vehicles to consumers and sell the used vehicles at wholesale auctions when the leases expire. But the drop in demand for SUVs this year has been accompanied by a plunge in their resale value by 25 percent and more as consumers flock to more fuel-efficient passenger cars. GM said declining lease values at GMAC depressed its second-quarter results by nearly $2 billion. Shares of GM were down almost 6 percent at $10.46 in afternoon trading and remain down 55 percent since the start of the year. The shares bounced back from a 54-year low of $8.82 in mid-July after the automaker outlined its plans to raise liquidity. But credit markets have priced in deeper risks for GM over the same period. GM bonds traded at record lows of less than 50 cents on the dollar on Friday after Standard & Poor's cut its rating on GM and said it expected it to burn through $16 billion in cash this year. The cost to insure GM's debt against default jumped to record highs. Five-year credit default swaps on GM's debt jumped to 41.5 percent of the sum insured, from 38.35 percent on Wednesday, plus annual premiums of 5 percentage points, according to Markit Intraday. About 90 percent of the 19,000 GM factory workers who took buyouts had left the GM's payroll by the second quarter. But GM will face charges this quarter from a just-launched buyout program intended to cut about 5,000 white-collar jobs. Tim Ghriskey, chief investment officer with Solaris Asset Management, said GM's cash burn could deepen if the economy worsens but said the automaker was showing a new urgency. "The Detroit automakers have had their heads in the sand for a long time, but they seem to have pulled them out now and are reacting and reacting quickly," Ghriskey said. (Additional reporting by Poornima Gupta , Ben Klayman in Chicago) (Reporting by Kevin Krolicki; Editing by Dave Zimmerman and Steve Orlofsky)

GM talks with Mahindra, others on Hummer-sources

Fri Aug 1, 2008 6:08am EDT

http://www.reuters.com/article/2008/08/01/us-gm-hummer-idUSBOM24779020080801

NEW YORK - General Motors Corp is in talks with Indian automaker Mahindra & Mahindra Ltd and automakers in Russia and China about selling its Hummer brand, sources familiar with the matter said.

One source close to the discussions said Mahindra is not very interested at this time, as it has plans to launch its own trucks and sport utility vehicles in the U.S. market. Mahindra would like to launch those vehicles under its own brand and has signed up more than 300 dealers to distribute a pickup truck next year. But talks with GM -- still in initial stages -- are continuing, the source said Thursday. GM declined comment. Mahindra was not immediately reachable for comment. The sources did not name the Russian and Chinese companies talking with GM. GM, which has said it will try to raise up to $4 billion through asset sales, has hired consultants and investment bankers to review the Chinese market for potential buyers for GM assets, one of the sources said. The struggling U.S. automaker, which has lost more than $51 billion over the past three years, said in June it was reviewing its Hummer brand, which has hurt GM's image at a time when consumers are demanding more fuel efficiency. Amid high gasoline prices, interest in buying a brand that gets only nine to 15 miles a gallon has been thin and continues to shrink, one source said. Hurt by an association with gas-guzzling excess, Hummer's U.S. sales fell 40 percent in the first half of the year. As part of a move to cut 300,000 light trucks from its planned production over the remainder of the year, GM has idled or slowed work at its Hummer assembly plants to run down inventories of unsold SUVs. MAHINDRA CHALLENGES A purchase of Hummer by Mahindra -- which bid for Ford Motor Co's British brands Jaguar and Land Rover and lost out to rival Tata Motors Ltd -- would present major challenges for the Indian automaker, one adviser familiar with the matter said. Mahindra is concerned that it lacks the scale to wring costs out of Hummer production, and any deal would probably have to include a commitment from GM to keep supplying products for several years, the adviser said. Also, the upscale image of the Hummer brand is a long way from the Mahindra-badged small pickup truck slated to hit U.S. dealers next year and its Scorpio SUV to be brought in after. The vehicles are expected to be marketed on their low price and relative fuel economy -- a sharp break with Hummer's established strategy of marketing tough-looking, military-derived vehicles to wealthier consumers. Also, the Hummer U.S. dealership network would be a bad fit for Mahindra because GM's franchises are in more affluent neighborhoods where car shoppers will be looking for luxury brands, the adviser said. Despite the concerns, Mahindra would go for Hummer if the price were right, two of the people familiar said. RUSSIA, CHINA Hummer's bold SUVs -- originally conceived as multipurpose, off-road military vehicles -- have a strong cache in Russia and China. Investment bankers have said that a Hummer bidder could be a rich business oligarch who would view Hummer as a trophy asset. One likely buyer could be Russian billionaire Oleg Deripaska, who controls GAZ, Russia's second-largest automaker. GAZ OAO is already planning to create a $1 billion joint venture with GM to compete with French rival Renault SA in Russia, Europe's largest car market. The Chinese party involved in talks with GM could be SAIC Motor Corp, China's biggest automaker. SAIC has a joint venture with GM in China and has been eager to enter the U.S. market. Other possible candidates could be Chery Automobile or Geely Automobile Holdings Ltd, both of which have been eyeing the U.S. market. But a Chery spokesman recently told Reuters there have been no talks on Hummer "at the management level." (Additional reporting by Kevin Krolicki in Detroit and George Chen in Shanghai; editing by John Wallace and Gerald E. McCormick)

Chrysler says working to add small cars

Fri Aug 1, 2008 7:50pm EDT

http://www.reuters.com/article/2008/08/01/us-chrysler-ceo-idUSN0134550820080801

DETROIT - Chrysler LLC Chief Executive Bob Nardelli said on Friday the automaker was working to add small cars to its product line-up through internal development and partnerships.

"We are working diligently to fill gaps in our portfolio by adding small car programs both through internal development as well as partnering initiative," he said in a letter to employees that was released to the media. (Reporting by Kevin Krolicki )

White House unhappy with "mixed" jobless report

Fri Aug 1, 2008 12:43pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-economy-bush-idUSWBT00950420080801

KENNEBUNKPORT, Maine - The White House said on Friday it was not happy with data showing the U.S. unemployment rate has risen to 5.7 percent, but it described the report as mixed because wages increased by 3.4 percent over the past year.

"We are displeased with this report and while the economy is not as strong as we would like, we are encouraged that the overall economy seems to be doing slightly better as the GDP report showed yesterday," White House spokeswoman Dana Perino said, referring to gross domestic product growth figures. "I think you could fairly call this a mixed report as wages rose by 3.4 percent over the last 12 months," she added. The monthly employment report showing another 51,000 people had lost their jobs came a day after the Commerce Department said the U.S. economy grew at a 1.9 percent annual rate in the second quarter thanks to an emergency stimulus package passed earlier this year. Perino said the full impact of the stimulus package had not yet been felt so "talking about a second stimulus package right now is premature." "I think the president is not inclined to move forward on a second stimulus package right now," she said, adding that one could be considered later once the full effects of the first package had been felt. "We are already seeing a positive impact on the economy, but the additional benefits from it, and the data that we'll see from it, aren't going to come for a little while," she said. (Editing by James Dalgleish )

Nike monitoring Malaysian factory after abuses

Fri Aug 1, 2008 5:37pm EDT

http://www.reuters.com/article/2008/08/01/us-nike-malaysia-idUSN0137086920080801

SAN FRANCISCO - Nike Inc ( NKE.N ), the world's largest maker of sports footwear and apparel, said on Friday it was putting a Malaysian contract factory on "red alert" after an investigation revealed workers living in substandard housing and wages being garnished.

Allegations of abuse at the Hytex Apparel factory, which has made garments for Nike for 14 years, were first raised in the media, Nike said. "Our investigation confirms serious breaches of Nike's Code of Conduct at the Hytex factory," said Hannah Jones, vice president of corporate responsibility for Nike, in a statement. The factory employed some 1200 workers who met minimum age requirements, but were living in "unacceptable" housing and whose passports were withheld, Nike said. Additionally, the factory garnished workers' wages, the company said. The Hytex factory supplies T-shirts to Nike and other apparel brands. The factory will be subject to additional monitoring from Nike as orders to change policies are implemented, Jones said. Migrant workers will be reimbursed for fees related to employment including agent and work permit fees, and workers who wish to return home will be given return air fare, Nike said. Workers, who will move into Nike-approved housing within a month, will be given free access to their passports and to a 24-hour Nike hotline in case of future passport withholding, the company said. Closing the Hytex factory would be a last resort for Nike, Jones said. "If we cut a factory, we lose our influence to force them to change," she said. Portland, Oregon-based Nike said it will review all its contract factories in Malaysia over the next 10 days and require them to implement the same policies as mandated at Hytex. According to data from early last year, Nike worked with some 34 factories in Malaysia. In March, the company found falsified documents, underage workers and unpaid wages at some suppliers in China. Abuses discovered at garment and shoe factories making Nike gear over two decades ago spurred Nike to launch its code of conduct in the early 1990s covering contractors who make Nike-branded products. The code mandates that contractors not use forced labor or child workers and factories not pay their workers less than minimum or prevailing industry wages, among other things. Nike, which has said monitoring alone has not resolved the recurring problem of working condition abuses at contract factories, wants to eliminate excessive overtime in those factories by 2011. (Reporting by Alexandria Sage )

GM, Ford, Toyota July U.S. sales drop, Nissan's up

Fri Aug 1, 2008 2:24pm EDT

http://www.reuters.com/article/2008/08/01/us-usa-autosales-ford-idUSWNAB445520080801

DETROIT - U.S. auto sales tumbled in July, reflecting a deepening downturn in the industry, with tight credit and weak consumer confidence driving General Motors Corp ( GM.N ), Ford Motor Co ( F.N ) and Toyota Motor Corp ( 7203.T ) to post double-digit declines.

Nissan Motor Co Ltd ( 7201.T ) bucked the trend with an 8.5 percent increase on strong car sales, while Honda Motor Co Ltd ( 7267.T ) reported only a 1.6 percent drop. July sales cast another shadow over Detroit's struggling automakers as they grapple with brutal competition, the impact of recent credit rating downgrades and a slump in demand for their most profitable products -- SUVs and pickup trucks. GM's weak showing came as the No. 1 U.S. automaker posted a $15.5 billion quarterly loss, with plummeting sales and prices for SUVs forcing deep charges for its auto finance business. All three U.S. automakers have pulled back on auto leases and tightened consumer credit terms to protect their balance sheets, particularly from the sharp decline in the resale values of trucks and SUVs. Chrysler LLC, which boosted incentives on its vehicles in August, has completely abandoned leases. The changes on leases, most of which take effect this month, may further pressure sales for automakers, as leases often have been structured to make monthly car payments more affordable. Ford said it expects the tougher credit environment and lease pull-back to weigh on industry sales for months to come. "For the next several months, and I would say for the next year, the credit situation that customers are facing in dealerships will take center stage," Ford's sales and marketing chief Jim Farley said. GM sales plunged 27 percent and Ford's sales fell 15 percent, while Toyota's sales slipped 12 percent. The figures were not adjusted for the two extra selling days last month compared with July 2007. Overall, total U.S. sales, including heavy vehicles, fell to between 12.7 million and 13 million on an annualized basis in July, according to Ford. The U.S. auto market is headed for its worst year in a decade amid high oil prices, weak consumer confidence and tighter credit. Analysts have recently cautioned that the sales decline will likely continue in 2009, with any turnaround for the U.S. auto sector only expected in 2010. The shift toward more fuel-efficient cars has hit Detroit-based automakers and their truck-heavy line-ups particularly hard. The automakers are slashing truck production and raising rebates on large vehicles to sell down swollen inventories. Among vehicle segments, large SUVs had the highest average incentives -- $6,199 per vehicle sold, followed by large trucks at $5,424, according to Edmunds, which tracks incentives including rebates and concessional financing. The average incentives offered on a new vehicle in July were up 3.6 percent to $2,611 and were the highest this year for both U.S. and Japanese automakers, it said. GM's per vehicle incentives were the highest at $4,214 followed by Chrysler with a $3,661 average per vehicle and Ford with $3,127 per vehicle, Edmunds said. (Additional reporting by Kevin Krolicki , David Bailey and Soyoung Kim , editing by Gerald E. McCormick)

Chrysler ups incentives to offset end of leasing

Fri Aug 1, 2008 2:10pm EDT

http://www.reuters.com/article/2008/08/01/us-chrysler-incentives-idUSN0148170420080801

DETROIT - Chrysler LLC CBS.UL said on Friday it is raising incentives on most vehicles, starting immediately, to offset the exit from the leasing business by its finance arm, Chrysler Financial.

Chrysler will offer an additional $2,000 cash back on vehicle purchases in addition to existing incentives, when financed through Chrysler Financial, and offer 72-month finance deals on an expanded range of vehicles. Existing zero-percent financing for six years on some models, including the Jeep Grand Cherokee and the Jeep Commander, are extended by another month through the end of August, the company said. Chrysler also said that returning lease customers would receive $750 to use for purchasing a new vehicle. "We're leveraging the move from leasing to retail purchases to offer customers the best deals of the year and make buying as affordable as renting," Chrysler President Jim Press said in a statement. The sweetened incentives came a week after Chrysler Financial said it would stop financing vehicle leases from August because of tumbling resale values of large trucks and SUVs. Bigger rivals General Motors Corp ( GM.N ) and Ford Motor Co ( F.N ) also announced cutbacks on leasing programs this week in response to tighter credit and the plunging resale prices of the large vehicles. A sharp decline in the resale value of gasoline-hungry trucks and SUVs has forced major automakers and related lenders to take large losses to write down the value of leases on those once-popular vehicles. (Reporting by Soyoung Kim ; Editing by Tim Dobbyn )

FDA unexpectedly rejects Schering anesthesia drug

Fri Aug 1, 2008 5:27pm EDT

http://www.reuters.com/article/2008/08/01/us-scheringplough-bridion-idUSN0128674820080801

NEW YORK - Schering-Plough Corp said SGP.N on Friday U.S. regulators had rejected Bridion, its drug to reverse the effects of anesthesia that had been heralded as a breakthrough product by analysts and was unanimously recommended by a federal advisory panel.

Schering-Plough shares fell 3 percent. The U.S. Food and Drug Administration issued a "not-approvable" letter for the injectable medicine, also known as sugammadex. The agency cited concerns about "hypersensitivity/allergic reactions" to the drug but raised no concerns about its effectiveness. Bridion was considered one of the most important products from Schering-Plough's $14.5 billion purchase last November of Organon Biosciences. Some analysts estimated it could generate annual sales of up to $1 billion if approved in the United States. "We are surprised and disappointed with this action, especially given that sugammadex received a unanimous recommendation for approval by the FDA Advisory Committee on Anesthetics and Life Support in March of this year," said Thomas Koestler, Schering-Plough's research chief. The company said it will continue to press for U.S. approval of the drug and is attempting to address safety issues with the FDA. Bridion was approved by the European Commission on Tuesday, after a favorable recommendation by its own advisory panel. In a March meeting with its medical advisors, FDA scientists said they were still reviewing additional safety data that showed heart problems and allergic reactions among patients given Bridion in a clinical trial. Some patients reported fast heartbeats, heart fluttering, rash and flushing. FDA reviewers also said at the meeting the data included some signals that more severe allergic responses were possible. Agency spokeswoman Susan Cruzan said the agency could not comment on why it rejected Bridion. "I am profoundly disappointed because I thought this drug would dramatically improve patient care and safety," said Dr. Ronald Miller, chairman of anesthesia at the University of California, San Francisco, who is a consultant for Schering-Plough. "As an anesthesiologist for over 30 years, I thought the allergic reactions, if due to sugammadex, were very mild and not as serious as drugs we currently use, including neostigmine and succinylcholine," Miller said. Deutsche Bank analyst Barbara Ryan called the Bridion rejection "a very big surprise." She said the FDA may have become too timid following media and congressional criticism of its approval of other drugs later deemed dangerous, including Merck & Co's ( MRK.N ) withdrawn Vioxx arthritis drug. "It looks like the FDA is in a bunker-down mode, with Congress all over them," Ryan said. "They're taking an extraordinarily cautious approach." Bridion's ability to quickly reduce residual paralysis would make recovery rooms safer -- by more quickly freeing patients from breathing tubes and their inherent potential of causing harm from undetected loss of oxygen, Miller said. "And because sugammadex can completely reverse a profound paralysis, it would have allowed more ideal surgical procedures," Miller said. Schering-Plough has been counting on Bridion and other products from the Organon deal to help bolster future profit. The earnings outlook for Schering-Plough has worsened this year, following negative findings for its Vytorin cholesterol fighter in two clinical trials that have hurt sales of the blockbuster product, which is sold in partnership with Merck. Bridion was approved in Europe for reversal of neuromuscular block, or temporary paralysis, induced by the widely used muscle relaxants rocuronium and vecuronium. It was shown in trials to reverse effects of neuromuscular blockade within minutes -- nine to 12 times faster than the standard reversal agent, neostigmine. Neuromuscular blockade is used by anesthesiologists to cause paralysis during surgical procedures, particularly of the abdomen, chest and brain. But patients require breathing tubes until the drugs wear off or are reversed. Schering-Plough is awaiting the FDA's verdict any day now on another Organon product, schizophrenia drug asenapine. "The company has already said the FDA division reviewing asenapine typically doesn't approve drugs on the first pass," said Mike Krensavage, principal of Krensavage Asset Management. Even if eventually approved, Krensavage said he expects only modest sales for asenapine, which in clinical trials did not suggest any significant advantages over existing products. Despite the rejection of Bridion, Edward Jones analyst Linda Bannister said Schering-Plough can still expect average annual earnings growth of 10 percent over the next five years, assuming its other important experimental drugs are approved. Unlike rival drugmakers, she said Schering-Plough is not facing the threat of generic competition in coming years for its big products. The company's shares closed down 67 cents or 3.2 percent at $20.41 on the New York Stock Exchange on Friday. (Additional reporting by Susan Heavey and Lisa Richwine in Washington) (Editing by Steve Orlofsky, Phil Berlowitz)

High-flying growth fund managers stumble in July

Fri Aug 1, 2008 6:26pm EDT

http://www.reuters.com/article/2008/08/01/us-funds-performance-idUSN0145711720080801

BOSTON - Some prominent growth-fund investors struggled in July after posting strong returns in the first two quarters of the year, as oil and commodities fell and financial stocks recovered.

Will Danoff and Harry Lange, managers of Fidelity's biggest U.S. stock funds, Ron Sachs and Jonathan Coleman of Janus Capital Group ( JNS.N ), and Ken Heebner of Capital Growth Management were among those whose performances faltered in July and hurt their year-to-date returns. But some value managers such as Richard Pzena and Bill Miller of Legg Mason had their best month in several quarters. Growth investors pick stocks whose earnings show fast growth and they have been favoring energy and commodities-related investments in the past few years. Value managers, who buy stocks with low valuations and good longer-term prospects, are heavily invested in financials. The performance divergence widened over the past year as the credit crisis hit financials and the relentless rise in oil pulled commodity plays higher. That trend reversed in July. "There's a lot of momentum strategies behind the growth style," said Jeff Tjornehoj, senior research analyst at Lipper. "And the stocks that had the momentum going into the first half of this year were those focused on basic materials and commodities, but the momentum dried up as worries over the U.S. economy and housing market rose." Lipper is a unit of Thomson Reuters Corp ( TRI.TO )TRIL.L. Danoff's Contrafund, Fidelity's biggest stock fund, lost 4.14 percent in July against the negative 0.8 percent return of the Standard & Poor's 500 index, according to Lipper data. That pushed down its ranking among peers to 40th percentile for the whole year from 22nd percentile at the end of June. "MISLEADING" The $70.7 billion fund had 18 percent of its portfolio in energy stocks and 12.1 percent in materials as of June 30. Schlumberger Ltd ( SLB.N ), the world's biggest oilfield services company, Exxon Mobil Corp ( XOM.N ), and Canada's biggest energy firm, EnCana Corp ( ECA.TO ), were among its top-seven holdings on June 30 and shares of all three slid in July. Fidelity's Magellan fund fell 3.93 percent in July and is now in the 87th percentile, according to Lipper. It had returned 0.57 percent in the quarter ended June 30, outperforming the S&P index's negative 2.73 percent return. The $35.7 billion Magellan had an 18.2 percent exposure to the energy sector and a 7.4 percent exposure to the materials sector as of June 30. "What helped keep them afloat -- avoiding financials, and (buying) energy, which has been strong most of the year -- had a bit of a role reversal for this month," said Christopher Davis, a Morningstar Inc analyst. He said that especially impacted Contrafund, which was "well overweight energy". A Fidelity spokesman said all its funds "focus on the long term" and it was inappropriate to focus on just one month's numbers. Janus Capital's flagship Janus Fund lost 2.59 percent in July. The fund had gained 0.24 percent in the second quarter when it had outpaced the S&P index. The $10.8 billion fund, managed by Coleman and Dan Riff, had oil producer and refiner Hess Corp ( HES.N ) as its top pick and Exxon Mobil as its eight-biggest holding on June 30. At the $12.8 billion Janus Twenty Fund, the performance deterioration in July was starker. Managed by Sachs, the fund fell 4.91 percent in July, after jumping 7.94 percent in the second quarter. The fund, which had more than a third of its portfolio in commodities stocks, is still the top performer in the large-cap growth category, according to Lipper. "We think it's misleading to look at one month's performance," Janus spokesman James Aber said. Heebner's CGM Focus fund, which had $10.3 billion in assets on June 30, slid 18.96 percent in July after gaining 27.01 percent in the second quarter. The fund has a big focus on the materials sector and the July losses have tipped it into the red for the year and it is now down 5.12 percent. CGM was not immediately available for comment. On the other hand, Pzena's $3.9 billion Classic Value Fund, which he co-manages for John Hancock Funds, rose 1.9 percent in July. The fund has 36 percent of its portfolio in financials. But it is still down 20.11 percent in 2008 through July 31. Miller's $9.7 billion Legg Mason Value Trust lost 0.97 percent in July, a significant improvement considering that it lost 11.07 percent in the second quarter and is down 29.29 percent in 2008. (Editing by Braden Reddall )

Gates investment arm trashes Waste Management bid

Fri Aug 1, 2008 3:27am EDT

http://www.reuters.com/article/2008/08/01/us-wastemanagement-gates-idUSN3138312120080801

SAN FRANCISCO - Bill Gates's investment arm has waded into a brewing takeover battle between Waste Management Inc WMI.N and Republic Services Inc ( RSG.N ), asking Waste Management to walk away.

Just over a month after he left Microsoft Corp ( MSFT.O ), Gates's BGI is lobbying the largest U.S. trash hauler to drop the unsolicited $6.2 billion bid it made this month for Republic, the third largest. While his investment vehicles have stakes in dozens of companies, they have kept low profiles over the years and Gates has not traditionally been known as an activist investor. But BGI didn't mince words in its letter to Waste Management's CEO and board, disclosed on Thursday. "We can only assume your ill-timed and poorly conceived pursuit of Republic is designed to disrupt what you perceive as a competitive threat to your position in the market," wrote BGI. "An acquisition of Republic will most certainly burden the company with excessive debt, distract your management, result in significant regulatory burdens, and thereby reduce shareholder value," it said. "We encourage you to act with the best interests of your shareholders in mind, in a responsible and prudent manner, and to abandon this acquisition." But Waste Management maintained that its bid for Republic was in the best interest of both companies and its stockholders. "We have asked to meet with the head of BGI to discuss with him why we believe this to be the case, and hope to be given that opportunity soon," a company spokesman wrote in an e-mail. Republic has already struck a deal to buy Allied Waste Industries Inc AW.N and rejected Waste Management's offer. Cascade Investment LLC, Gates's investment vehicle, and Bill & Melinda Gates Foundation Trust LLC together own about 2.3 percent of Houston-based Waste Management, which has grown since the late 1960s into a trash hauler with more than 350 collection operations and 270 active landfill sites. A call to a BGI spokesman late on Thursday was not immediately returned. Gates on June 27 said a tearful goodbye to Microsoft to focus on his foundation, the world's largest charity. The action by BGI follows efforts by fellow multibillionaire and activist investor Carl Icahn to influence a six-month takeover battle between Yahoo Inc ( YHOO.O ) and Microsoft. (Editing by Braden Reddall and Andy Bruce )

Asmussen says euro zone in better shape than 12 months ago

Sun Feb 17, 2013 1:01pm EST

http://www.reuters.com/article/2013/02/17/us-eurozone-asmussen-idUSBRE91G0CF20130217

BERLIN - European Central Bank board member Joerg Asmussen said on Sunday the euro zone is in better shape than a year ago thanks to positive budget consolidation efforts in individual countries, the European Union's fiscal pact and ECB actions.

Speaking on German network ARD, Asmussen said the euro zone was in better shape now than a year ago despite the weak growth in the fourth quarter of 2012. He cited in particular Italy prime minister Mario Monti's budget consolidation efforts. "We're in better shape now than 12 months ago due to several factors," he said. "There was positive steps taken by individual member states, such as the budget consolidation by the Monti government. "There was also the fiscal pact agreed at the European Union level," he added, referring to the European budget discipline treaty. "And there was also the actions of the ECB that were within our mandate. So we're in better shape even though growth in the fourth quarter was weak." (Reporting By Erik Kirschbaum ; editing by Birgit Mitwollen)

Finmeccanica unit says India did not cancel helicopter order

Sun Feb 17, 2013 10:28am EST

http://www.reuters.com/article/2013/02/17/us-finmeccanica-india-idUSBRE91G09720130217

LONDON - Italian defense group Finmeccanica's subsidiary AgustaWestland ( SIFI.MI ) denied on Saturday that India had cancelled a $750 million order for a dozen helicopters and said authorities had asked for "clarifications" within a week's time.

On Friday, the Indian defense ministry said it had begun the procedure to cancel the order. "The Indian Ministry of Defense has not cancelled the contract but has given notice requesting information within seven days," AgustaWestland said in a statement. "AgustaWestland is preparing its answer to timely meet the Indian authorities' request." The British-based subsidiary said it was confident it would prove that all its past and present managers had conducted themselves in accordance with the law. India has frozen payments for the AgustaWestland helicopters pending an inquiry after Italian police earlier this week arrested the former head of Finmeccanica ( SIFI.MI ), Giuseppe Orsi, for allegedly paying bribes to Indian politicians to win the contract. Three of the helicopters have already been delivered. India launched its own inquiry after Orsi's arrest and investigators are due to travel to Italy next week to find out more about the case. Finnmeccanica could be blacklisted in India for five years if found guilty of bribery. Defense analysts IHS Jane's says Finmeccanica has been pursuing opportunities in India valued at more than $12 billion in 2013. (Reporting by Frank Jack Daniel ; writing by Jessica Donati; editing by James Jukwey and Helen Massy-Beresford)

India cracks down on taxation of transfers within foreign firms

Sun Feb 17, 2013 5:17pm EST

http://www.reuters.com/article/2013/02/17/us-india-tax-idUSBRE91G0FY20130217

MUMBAI - India is aggressively pursuing tax claims against multinational firms operating in the country as the government seeks to rein in its budget deficit, taking particular aim at IT and back-office functions, tax officials say.

It has targeted several multinational companies in recent years for tax audits on transfer-pricing, but over the past 12 months has widened the scope of the investigations, tax officials said. Authorities are now checking deals involving more than three dozen companies, focusing on transactions worth at least 250 million rupees ($4.7 million), officials said. Having just issued claims for the financial year to March 2009, it has shifted focus to 2009/2010. Transfer pricing is the value at which companies trade products, services or assets between units across borders, a regular part of doing business for a multinational. Revenue authorities in many countries including Britain, France, Germany and the United States are increasingly challenging efforts of companies to minimize tax liabilities by moving taxable income from higher-taxing jurisdictions to lower-tax ones. In India's case, critics worry overly aggressive tax authorities could undermine foreign investment although tax officials say they have been working overtime as Finance Minister P. Chidambaram looks to make up a revenue shortfall and head off the threat of a credit rating downgrade. "On some days we had to work through the night to meet the deadline," said one official. "There are so many cases that are coming to us but we don't have an adequate number of people." At least 1,500 transfer pricing disputes were in litigation in India as of February 2011, compared with fewer than six in the United States and none in Taiwan or Singapore, an Ernst & Young survey showed in August 2012. Still, Western campaigners say BRIC countries - Brazil, Russia, India and China - are tougher on corporate tax avoidance than developed countries. One company in the cross hairs, Anglo-Dutch oil major Royal Dutch Shell ( RDSa.L ), said earlier this month it would challenge a claim its local unit underpriced shares transferred to the parent by $2.8 billion. Shell said the claim is based on an "incorrect interpretation" of tax rules and "bad in law". Shell said its India unit issued 870 million shares to parent Shell Gas BV at 10 rupees apiece in 2009 but that tax authorities valued them at 183 rupees each. Effectively, India is demanding the tax on the interest Shell would have earned on the $2.8 billion, in the largest ever claim in an Indian transfer pricing case, tax officials said. South Korea's LG Electronics Inc ( 066570.KS ), Singapore property group Ascendas, French IT services firm Capgemini ( CAPP.PA ) and chocolate maker Cadbury, are among numerous global companies involved in transfer pricing disputes in India, documents at the tax department's appellate tribunal show. These companies have challenged the tax department's orders. In information technology and business process outsourcing (BPO), the tax department believes many firms are taking advantage of low costs in India to develop high-end, patented services or products that are sent to overseas parent firms as low-value routine work, the tax officials said. These sectors are expected to account for more than half the total claims in transfer pricing deals in the fiscal year 2008/09, one of the officials said, up from about one-third earlier. Outsourcing makes up more than $100 billion of India's economy with companies such as Accenture ( ACN.N ), Bank of America Merrill Lynch ( BAC.N ), and Microsoft Corp ( MSFT.O ) employing thousands in functions such as customer service, risk and fraud management and finance and accounting. A spokeswoman for the National Association of Software and Services Companies said the Indian outsourcing lobby group was concerned tax authorities have been making "inconsistent and very aggressive adjustments." HOT TAX ISSUE Because valuing an internal transaction is often a matter of opinion and assumption of future growth, companies and tax authorities can arrive at widely divergent views on their value. "Some of their decisions on valuations are very arbitrary and obviously may not be sustainable at higher appellate levels," said Sanjay Tolia, partner for transfer pricing at Price Waterhouse & Co in Mumbai. In LG Electronics' case, tribunal documents show the company's Indian unit was deemed to be promoting the LG brand owned by its parent, which should have compensated the local unit, thereby generating taxable income. Authorities claim the excess expenditure amounted to a transfer pricing adjustment of 1.61 billion rupees. Earlier this month, British-based mobile phone giant Vodafone Group Plc ( VOD.L ) said it had received a fresh transfer pricing order in India over the issue of shares by a unit, adding to its tax woes in the country. India's tax office says the Vodafone unit under-priced shares issued to a Mauritius-based group company by nearly 13 billion rupees ($244 million), ET NOW TV station reported recently. Vodafone said it would challenge the order. Vodafone is already fighting a transfer pricing case in the Bombay High Court that involves a $1.6 billion disagreement, a person with direct knowledge of the matter said. The company declined to comment. India is also trying to claim more than $2 billion in tax stemming from Vodafone's 2007 acquisition of an Indian mobile company from Hong Kong's Hutchison Whampoa Ltd ( 0013.HK ). Vodafone says share subscriptions are not covered by either Indian or international rules on transfer pricing so the latest order had "no basis in law". Tax officials say that while shares are not taxable, the department is increasingly clamping down on under-priced share deals on the premise that it is losing out on taxing the interest that the adjusted amount would have earned. Still, consultants say the department's argument would not stand the test of law. Cadbury said it has challenged a ruling made against it for 2007-08 and that India's income tax tribunal had granted a stay on the demand upon payment of less than 10 percent of the amount. The income tax department argues the local unit overpaid its parent for brand royalty and service fees, thereby lowering its profit in India and resulting in a lower tax obligation. "It is not uncommon that the income tax department and a tax payer have a difference of opinion on the interpretation of tax laws," Cadbury said in a statement to Reuters. Ascendas and Capgemini also declined to comment. The average corporate tax rate in Asia in 2013 is 22.89 percent while in Europe it is 20.49 percent, compared with 32.45 percent in India, KPMG says. (Additional reporting by Devidutta Tripathy and Manoj Kumar in NEW DELHI and Harichandan Arakali in BANGALORE; Editing by Tony Munroe , Alex Richardson and Neil Fullick)

Spotlight on Avon's McCoy at CAGNY conference

Sun Feb 17, 2013 12:20pm EST

http://www.reuters.com/article/2013/02/17/us-avon-cagny-idUSBRE91G09C20130217

NEW YORK - Investors bought everything Avon Products Inc ( AVP.N ) Chief Executive Sheri McCoy was selling last week, lifting shares 23 percent on the back of solid results and a confidence the new CEO has a turnaround plan.

That makes the spotlight even brighter on McCoy when she takes center stage on Thursday at an important industry analyst conference and details that turnaround. Among her biggest challenges: fix the company's technology problems, and help the sales representatives generate more cash. "She has to start speaking with specificity," said Kathy Gersch, a co-founder of Kotter International, which helps companies implement strategies and whose clients include Coty Inc COTY.UL, a smaller rival that tried to buy Avon last year. "It's not just about fixing the company anymore. It's about moving the company into the future." So far, McCoy and finance chief Kimberly Ross, have taken early steps to cut costs, stanch an exodus of representatives in top markets like Brazil and Russia, and start talks with U.S. officials to settle a costly overseas bribery probe. Wall Street gives McCoy and Ross kudos for being frank about the depth of Avon's problems and for taking tough steps like cutting 1,500 jobs in December as part of plan to save $400 million in costs a year by 2015; and exiting Vietnam and South Korea where it is too far behind rivals. The quarterly performance turned in on Tuesday showed some of that progress, cheering investors who had become disappointed by the broken promises in the later years of the tenure of Andrea Jung, McCoy's predecessor. But that is just a start. "We'd like to see a detailed plan of how they will fix the business, not just stop the bleeding," Sanford C. Bernstein & Co analyst Ali Dibadj said. He was unconvinced that there "is enough fat in the cost-structure to cover for the significant reinvestment" that the company needs." An Avon spokeswoman declined to give details of the presentation McCoy and Ross will give at the Consumer Analyst Group of New York, the venue where new managements often offer their grand vision for a turnaround strategy. Few expect a laundry list of projects. But 10 months into her tenure, McCoy now should know the business well enough to be more expansive. McCoy has said not to expect a linear recovery for Avon. U.S. sales remain a disaster, falling 12 percent last quarter, and Avon is largely missing out on Asia's boom in cosmetics spending. Last year, McCoy stated her goal of reaching mid-single digit percentage sales growth by 2016, and for an operating margin in the low teens. Those are ambitious targets, considering sales fell 5 percent last year, while operating margin was 6.5 percent. Barclays Capital in a note, said that the shares' current level, now above $20, prices in Avon achieving those goals. So for shares to rise higher, McCoy will have to convince the Street, Avon can do better than just stanch the bleeding. MCCOY'S TO DO LIST High on the list are details of what technology investments Avon will make to fix long term problems that have alienated countless sales representatives and cost it sales. Avon's computer software systems, by all accounts, are inadequate for a company of its size and complexity, operating in dozens of countries. That has led to poor inventory management, product shortages and shipment mistakes, frustrating the "Avon Ladies" on whom the company depends almost entirely for selling its products. In Brazil, Avon's top market, poor implementation of a new computer system has been a big source of frustration for sales representatives, many of whom also represent rivals such as Natura Cosmetics SA ( NATU3.SA ). The company is making some progress with fixing its systems there, winning back some reps last quarter. Another thing the analysts want to know is how the company intends to make being an Avon Lady more lucrative. Last quarter, it took steps like offering accident and risk insurance to Mexican representatives who meet their goals. And in Russia, sales returned to growth, helped in part by a line of high-end, color cosmetics made just for that market. Morningstar analyst Erin Lash told Reuters that she wants to hear more about products developed for specific markets. Ultimately, though, it is money that talks. Avon reps keep a smaller cut of their sales than those of Mary Kay Cosmetics, for example, and other rivals, and that has to change. "We suspect the company will have to increase its rep compensation by a meaningful amount in order to reduce its turnover rate," UBS analyst Nik Modi wrote in a note to clients. Whatever McCoy and Ross tell investors at CAGNY, these first few months of rolling up their sleeves, doing prosaic but important things like paying down some debt, and showing early results, have won them a lot of wiggle room. "There are positive indications that Avon's turnaround efforts are starting to have an impact," BMO Capital Markets Connie Maneaty wrote. "The financial cloud is lifting." (Reporting By Phil Wahba; Editing by Brad Dorfman , Ed Tobin and Leslie Gevirtz ) (This story corrects country to Mexico, not Brazil, in 6th to last paragraph)

Abu Dhabi lays foundations for mammoth Pakistan property project

Sun Feb 17, 2013 6:44am EST

http://www.reuters.com/article/2013/02/17/us-emirates-pakistan-karachi-idUSBRE91G04W20130217

ABU DHABI - A member of Abu Dhabi's royal family says he plans to spend $45 billion over up to 15 years on a real estate project in Karachi, touted in Pakistan as the country's biggest ever foreign investment.

Sheikh Nahayan bin Mubarak al-Nahayan said the investment plans - which his business partner in Pakistan said on Friday included the tallest building in the world - were at a very early stage. Sheikh Nahayan, chairman of conglomerate Abu Dhabi Group, said his privately-owned construction firm, Dhabi Contracting, had signed a memorandum of understanding with Pakistani real estate tycoon Malik Riaz Hussain to build residential properties on an island in Karachi. "We have signed an MoU but a lot of studies will still have to be done," he told Reuters on Sunday on the sidelines of a defense industry exhibition in the United Arab Emirates capital. Nahayan, who is also the UAE's minister for higher education, gave no details of how he would finance such huge developments, beyond saying it could be done through loans or cash. "It will be in phases. Every phase will be studied by itself... It depends on the situation when we decide to go ahead with the projects." Abu Dhabi Group, which invests in emerging markets, already has large investments in Pakistan including Bank Alfalah ( BAFL.KA ), Warid Telecom, Al Razi Healthcare and Wateen Telecom. A statement issued in Pakistan on Friday said the deal had the potential to transform the south of the country. Karachi, the country's commercial hub, is known for its violent crime, which claims about a dozen lives a day, the risk of being kidnapped and crumbling infrastructure. The deal included plans to construct a miniature seven wonders of the world, the tallest building in the world, a sports city, an education and medical city, an international city and a media city, according to the press release. Sheikh Nahayan said on Sunday that a final decision to build the world's tallest tower had not been made, adding that developments would be mainly residential. The tallest tower currently is the Burj Khalifa, built in Dubai at a cost of $1.5 billion. (Reporting by Raissa Kasolowsky ; Writing by Amran Abocar ; Editing by John Stonestreet)

Dubai's Nakheel in talks to extend $2.2 billion loan: report

Sun Feb 17, 2013 7:02am EST

http://www.reuters.com/article/2013/02/17/us-dubai-nakheel-loan-idUSBRE91G03020130217

- Developer Nakheel NAKHD.UL is in talks to extend 8 billion dirhams ($2.18 billion) in loans due in 2015, the indebted company's chairman was quoted as saying in a local newspaper on Sunday.

Ali Rashid Lootah dismissed concerns over Nakheel's ability to repay its debts, which also include a 3.8-billion dirham sukuk, or Islamic bond, due in August 2016, Abu Dhabi-based newspaper, The National, reported. The government-owned builder agreed a $16 billion debt restructuring in 2011 and has scaled back grandiose plans such as building a one-kilometer high tower after becoming a high profile corporate casualty of the Dubai property crash. Debts held by Nakheel, owned at the time by flagship conglomerate Dubai World DBWLD.UL helped trigger the emirate's 2009 debt crisis. A last-minute bailout by Abu Dhabi helped Dubai avert a bond default on a Nakheel bond in December 2009. "We are talking to financial institutions to restructure our loan, which is a normal part of business because the original tenure is very short," Lootah said. "We have time but we are talking to them from now and engaging them from now to get a longer term. We are not worried about the sukuk. Our strategy first will be deal with the lenders. The sukuk is a secondary issue to that." The bank loans under consideration are thought to be debt restructured under the 2011 agreement. This includes 6.76 billion dirhams in secured facilities provided by, among others, Dubai's biggest bank Emirates NBD ENBD.DU as well as 470 million dirhams in unsecured facilities, all due in 2016, according to Nakheel's sukuk prospectus and estimates by Exotix Limited. "This is all previously restructured bank debt. They (Nakheel) are trying to refinance all of this debt before the majority falls due in 2016," said Gus Chehayeb, director, Middle East and Africa Corporate Research at Exotix, in Dubai. Nakheel reported a 57-percent rise in annual profit in January. It also made interest and profit payments of around 800 million dirhams to lenders last year and has paid around 10 billion dirhams to various trade creditors and contractors since the start of its debt restructuring. "We have sorted all the old issues, most of the old issues," Lootah told the newspaper. But he ruled out re-starting work on Palm Jebel Ali, one of three man-made islands in the shape of palm fronds that Nakheel planned to build off the Dubai coast. Of these, only one - Palm Jumeirah - has been completed. "Nakheel will grow and grow and grow in a more careful manner and with a more well-studied strategy and plan," Lootah said. "Tourism is booming in Dubai so people are looking for more options, so we are looking at that." Last week, Dubai gave the go-ahead for a $1.6 billion artificial island, not connected to Nakheel, as it resumes extravagant developments, despite several stalled or abandoned projects commissioned during the previous decade's boom. (Reporting by Matt Smith and Mala Pancholia; Editing by Helen Massy-Beresford)

France blames Spanghero bosses as UK probes horsemeat warning

Sun Feb 17, 2013 8:59am EST

http://www.reuters.com/article/2013/02/17/us-horsemeat-investigations-idUSBRE91G07720130217

PARIS/LONDON - France said on Sunday managers at French firm Spanghero were responsible for passing off horsemeat as beef, while Britain said it would investigate claims that warnings about horsemeat entering the food chain were raised in 2011 but ignored.

Revelations that some beef dishes actually contained horsemeat has caused a scandal across Europe, leading to products being removed from sale and police investigations. It has also cast a spotlight on food labeling and the complex supply chain across the EU trading bloc, damaging Europeans' confidence in the food on their plate and putting pressure on governments to explain lapses in quality control. An investigation into activities at meat-processing firm Spanghero has revealed "serious, specific and coherent" reasons to suspect it knowingly defrauded customers and consumers by selling them horsemeat labeled as beef, the government said. However, the firm's 330 workers were not to blame and would meet with Agriculture Minister Stephane Le Foll on Monday to determine how they would be paid until the plant, whose sanitary license has been revoked temporarily, could reopen. "The government distinguishes responsibility for what appears to be the actions of Spanghero's leaders from the work of its employees," ministers for agriculture and consumer affairs said in a joint statement. The scandal, affecting a growing number of European countries and retailers, began in Ireland when its food safety authority discovered horsemeat in frozen beef burgers. Investigations to determine how horsemeat ended up in ready meals sold across Europe homed in on Spanghero, but further probes are under way targeting a meat trader in the Netherlands and other firms in the supply chain. HORSEMEAT ISSUE RAISED IN 2011? Britain's Sunday Times newspaper reported serious concerns had first been aired about horsemeat with British food chiefs 18 months ago but nothing had been done. John Young, a former manager with Britain's Food Standards Agency (FSA), said he helped draft a letter to the government in April 2011 on behalf of Britain's biggest horsemeat exporter, highlighting failures in the system to stop horses treated with the drug phenylbutazone from entering the human food chain. "I discussed this with the chief executive of the Food Standards Agency this morning and she is going to go back through the records and see exactly what was said at the time," Britain's Environment Secretary Owen Paterson told Sky News. Phenylbutazone, commonly known as bute, is an anti-inflammatory painkiller for sporting horses but banned for animals intended for eventual human consumption as it is potentially harmful in large concentrations. The FSA said last week six horses slaughtered in Britain had tested positive for bute and might have entered the human food chain. Irish authorities first discovered horsemeat in beef burgers made by firms in Ireland and Britain on January 15. However, the scandal widened two weeks ago when tests on beef lasagne made by the British unit of frozen foods group Findus FODVT.UL showed the product contained up to 100 percent horsemeat. Europol are now coordinating criminal investigations across Europe, and in Britain three premises have been probed, two closed down and number of arrests made, Paterson said. Spanghero had its license revoked for the duration of the probe after French officials said it must have known it was buying horsemeat, which is cheaper and carries a different customs code when delivered in frozen blocks. The firm's president Barthelemy Aguerre struck back at accusations on Friday, saying the government had been too quick to point the finger. But radio France Info reported that investigators had seized nearly 1,500 pages of invoices at Spanghero's factory in southwestern France that showed the customs code "0205" for horse whereas the codes for beef are "0202" and "0201". The radio cited unnamed investigators as saying Spanghero must have been aware of the difference between the codes, which are easily verifiable on a European Commission web site. The UK's Paterson called for stricter food testing across Europe, and Austria's agriculture minister, Nikolaus Berlakovich, called for European "food passports" that would let consumers see the origins of ingredients in processed foods. (Additional reporting by Michael Shields in Vienna; Editing by Rosalind Russell)

Global investors watch how chips fall in China's cashless casino bar

Sun Feb 17, 2013 1:47am EST

http://www.reuters.com/article/2013/02/17/us-china-sanya-casino-idUSBRE91G00Q20130217

SANYA, China - Placing bets on green-felt baccarat tables in a new casino bar on China's southern Hainan island, punters seem oblivious to a huge wager quietly being placed around them, one that could potentially siphon business from the world's largest gaming hub in Macau an hour's flight away.

For now, players at Jesters casino bar, part of the newly opened Mangrove Tree Resort World on Sanya Bay, cannot win cash - only points that they can use to pay for accommodation, luxury goods, jewelry and artwork for sale at the resort. Owned by art, film and real estate mogul Zhang Baoquan, the casino bar marks the Chinese government's first tacit approval of a gaming concept outside of Macau. Global investors, including some of the world's biggest gaming companies, are watching to see how the chips will fall. "Our casino bar is the first in the country. The government is monitoring, it's a test," Zhang told Reuters in a recent interview at his 23rd-floor office overlooking his sprawling 173-acre property that opened late last year. "Right now we are not at this stage (legalising casino gambling), but my personal opinion is, in future, there is a big possibility that they will have." The stakes are enormous -- China's monopoly gambling site, Macau, raked in $38 billion in gaming revenues last year, primarily from Chinese gamblers. If Beijing were to allow gambling elsewhere in the country, cash would follow. It's not just the Chinese government that is watching the development. MGM Resorts International ( MGM.N ) opened a hotel in Sanya last year and fellow U.S. casino operator Caesars Entertainment is set to open a hotel in 2014. An MGM spokesman said the company had no plan to introduce "anything of this kind". Caesars did not respond to requests for comment. Dressed in jeans and a black-and-white Hawaiian shirt during his interview, the 56-year-old Zhang said he aims to create an integrated resort similar to those in Las Vegas and Singapore where gaming, convention space and retail outlets are offered together. Mangrove Tree Resort World, the newest addition to Hainan's rapidly developing hotel scene, will be China's biggest resort when construction is completed next year. It will have more than 4,000 rooms, a convention hall accommodating 6,000 people and facilities including a water park. It is one of 10 integrated resorts that Zhang is developing around the country, including one more in Sanya and others stretching from Lhasa in Tibet to the eastern coastal city Qingdao. While the Chinese government does not permit casinos in the country outside of Macau, Zhang - ranked by Forbes as one of the country's 300 richest people in 2012 with $600 million - said Hainan could become an exception. Sensitive to existing restrictions, the soft-spoken businessman emphasized cultural attractions such as his art gallery that, along with the casino bar, will be incorporated into the planned resorts. WINNING "MANGROVE" POINTS Inside Jesters, which models itself on Macau's casino halls with garish chandeliers and a giant roulette wheel ceiling, players buy tickets costing 500 yuan ($80) each. Bets range from 20-2,000 yuan in the mass area, while the high-limits area is set at 2,000-100,000 yuan. Big whale punters will be able to bet over 100,000 yuan once the VIP room opens on the second floor. The casino bar, with 50 gaming tables now, is currently open only to hotel guests, but when the resort is completed, local residents will be allowed in. When players win, they receive "Mangrove" points that can be used to buy products available in the casino such as an iPad 3G or a Rimowa suitcase. Once luxury brands open outlets within the resort, customers will be able to spend their points in those stores. Art work from Zhang's Beijing art gallery is also available for purchase. Retail stores including Prada and Louis Vuitton will be part of a network of 20 luxury stores that will open at the resort next year, Zhang said. Zhang, president of Beijing conglomerate Antaeus, has the financial backing of China Development Bank. The state lender invested 70 percent of the cost of the Mangrove Tree expansion. "The local governments are very supportive," says the boyish-looking Zhang, who started off as a carpenter in his hometown of Zhenjiang in eastern Jiangsu province, and now is well known as an arts philanthropist and prominent film investor. Married to Wang Qiuyang, a mountaineer whose father Wang Chengbin was a former army commander, Zhang said any potential change to gambling restrictions would take time, adding that the government would need to decide whether to let other operators open similar casino bars. "Gambling culturally is a very bad thing, but today there is a difference -- gambling is a financial tool," said Zhang. "In Asia, even North Korea has two casinos. The richest country, Singapore, before you would never think society would accept it there. All over the world the attitude towards casinos is different from what it was traditionally." SANYA AND BEYOND China is positioning Hainan as an international tourist destination, approving the construction of 15 large resorts and 63 five-star hotels as part of the country's five-year plan. As Chinese spend their money in new casinos across Asia from the Philippines to Vietnam, pressure is growing on Beijing to keep more gamblers at home. "To some extent, the approval of gaming on Chinese soil is inevitable," said Gary Pinge, analyst at Macquarie Group in Hong Kong. "With regional markets already vying for a share of the Chinese gambling wallet, unless China brings gaming onto its own shores, it will not only lose tax revenues to other countries, but also the 'multiplier effect' from the consumption spend." In the meantime, Zhang is pushing ahead with his expansion plans. Aiming to list the Mangrove Tree brand on the Hong Kong stock exchange in 2015, Zhang hopes to use the capital raised to take his Mangrove Tree brand outside of China. "Sydney, the Maldives, the United States, England, Paris and Turkey" would all be good, said Zhang with a shy smile. (Editing by Ken Wills )

Abu Dhabi's Etihad needs to revise Jet Airways deal: chairman

Sun Feb 17, 2013 3:51am EST

http://www.reuters.com/article/2013/02/17/us-etihad-jet-idUSBRE91G02V20130217

ABU DHABI - Etihad Airways needs to revise its deal to buy a stake in India's Jet Airways ( JET.NS ) and it is too soon to say when a final agreement will be struck, the Abu Dhabi airline's chairman told Reuters on Sunday.

Sheikh Hamed bin Zayed al-Nahayan, speaking on the sidelines of a defense exhibition in the UAE capital, said officials would meet Indian Trade Minister Anand Sharma to discuss the deal. Asked if a Jet deal would be signed by March or April, Sheikh Hamed said: "I don't know ... we need to revise it." The terms of the possible deal have not been disclosed, but a government source said earlier this month Etihad was in talks to pick up a 24 percent stake in Jet for up to $330 million. Asked if a Jet deal would be finalized soon, Sheikh Hamed said: "It's too early to decide." Sheikh Hamed, who is also managing director of sovereign wealth fund Abu Dhabi Investment Authority, did not specify why the deal needs to be revised. "We need to talk with the Indians about other issues ... including this," he said. Unlisted Etihad's chief executive said this month the Abu Dhabi carrier was conducting due diligence on making an investment and would present the findings to its board. The Jet Airways deal would be the first foreign investment in India's aviation industry since the government relaxed ownership rules last September. This allows foreign airlines to buy up to 49 percent in the country's domestic carriers, many of which are facing stiff competition and high operating costs. Sheikh Hamed also dismissed talk of the carrier's interest in India's grounded Kingfisher Airlines ( KING.NS ) as "rumours". Kingfisher said in December it was in talks with several investors, including Etihad, for a stake sale but those hopes have faded as the indebted airline remains grounded. (Writing by Amran Abocar ; Editing by Paul Tait )

Florida hit by "tsunami" of tax identity fraud

Sun Feb 17, 2013 7:26am EST

http://www.reuters.com/article/2013/02/17/us-usa-tax-fraud-idUSBRE91G05M20130217

MIAMI - Bruce Parton was only a few weeks from retirement after 30 years as a mail carrier in sunny Florida.

He never lived to fulfill his retirement plan of moving back to a quiet life in the Catskill mountains of New York, not far from where he grew up on Long Island. Instead, he was gunned down on his daily mail route in December 2010 by members of an identity theft ring who stole his master key as part of a scheme to claim fraudulent tax refunds. Using stolen names and Social Security numbers, criminals are filing phony electronic tax forms to claim refunds, exploiting a slow-moving federal bureaucracy to collect the money before victims, or the Internal Revenue Service, discover the fraud. Parton was a victim of what officials say has ballooned into a massive, and dangerous, illegal industry that could cost the nation $21 billion over the next five years, according to the U.S. Treasury Department. While that is a relatively small sum compared to the $1.1 trillion collected from individual tax payers in the last fiscal year, the crime has been growing by leaps and bounds in the last three years. "We are on the top of a national trend that is causing a hemorrhage of tax dollars," said Wifredo Ferrer, United States Attorney for south Florida. "It's a tsunami of fraud." While the IRS says it has detected cases in every state except North Dakota and West Virginia, the fraud's epicenter is Florida, and it is mostly concentrated in Miami and Tampa. Miami has 46 times the per-capita rate of false tax refund claims than the rest of the country, and 70 times the national average in dollar terms, Ferrer told Reuters. "For whatever reason, we always tend to lead the nation when it comes to fraud," he said, noting that his office has been battling massive Medicare fraud in recent years that has since spread to other parts of the country. Florida's high proportion of older residents, who can be more vulnerable to fraud, may be one reason for the high levels of fraud in the state. Nationwide, the number of cases of tax identity theft detected by authorities sky-rocketed to more than 1.2 million cases in 2012 from only 48,000 in 2008, according to the Treasury Department. The real number of phony tax filings is likely much higher as the fraud is hard to track, according to a November General Accountability Office report. GANG LINKS The tax ID theft problem is particularly troubling as, unlike Medicare fraud, it is associated with violent crime and armed gangs. Tampa police first detected it in 2010 when officers discovered wanted street criminals engaged in tax fraud. "They were holed up in hotels with laptops churning out tax claims," said congresswoman Kathy Castor, who represents the area and is pressing the IRS to get tougher on the fraud. When agents raided a Howard Johnson in East Tampa in late 2010, they found suspects smoking marijuana and four laptop computers being used to file fraudulent tax returns on Turbo Tax, the tax preparation software, according to police records. The suspects had lists of personal information containing more than 1,000 names and confidential personal information, multiple re-loadable debit cards, and records of numerous financial transactions. The investigation revealed that the suspects had been camped out in the hotel room for more than a week filing claims. Tax identity fraudsters are apparently drawn by the ease of the crime, officials say. "The scheme is very basic, it works virtually the same in almost every case," said Ferrer. "All they need is your name and the tax ID number." Armed with that information a refund claim can be filed electronically, making up other details on the form, including addresses, employer data, income and deductions. Criminals obtain the vital numbers using various tactics, often by bribing office workers with access to personnel files inside companies, as well as large public institutions such as hospitals and schools, according to prosecutors. Last summer a hacker stole 3.8 million unencrypted tax records from the South Carolina Department of Revenue in what is believed to be the largest security breach of a U.S. tax agency. Authorities say they do not know the hacker's motive. One North Miami man, Rodney Saint Fleur, was charged last year with using the LexisNexis research service account at the law firm where he worked to access names and Social Security numbers of 26,000 people as part of an identity theft scheme, according to court documents. Victims in Florida have varied from hospital patients, to Holocaust survivors at an elderly Jewish community center, as well as active duty military serving overseas. In December, a former U.S. Marine from North Miami was sentenced to nearly five years in prison for stealing the identities of more than 40 fellow Marines stationed at Camp Leatherneck in Afghanistan as part of a plot to claim $54,000 in fraudulent income-tax refunds. In Parton's case the criminals were after his master key that gives postal workers access to mail drop-off boxes and apartment mailboxes. He was shot twice in the chest by a gunman as part of a plot to steal identities in people's mail for tax refund fraud. The gunman, Pikerson Mentor, 31, was sentenced last month to life plus 42 years. More than 600 people turned up for Parton's funeral, including postal workers and people who got to know him on his route. "He had been doing that mail route for 10 years and he always had a smile for everyone," said his daughter, Nina Parton. The criminals stay under the radar using identities of the elderly or the very young, who are unlikely to be filing for earned income, as well as the deceased. They typically claim small refunds, around $3,000, but use multiple identities, with payments often made to pre-paid debit cards. FIGHTING BACK The IRS said last week it is intensifying a crackdown on identify theft, with 3,000 agents devoted to tackling the problem, double the number assigned in 2011. The number of IRS criminal investigations into identity theft more than tripled in the year to September 2012, and it was on pace to double again this year, acting IRS Commissioner Steven Miller told reporters. The tax collection agency prevented $20 billion in attempted tax refund fraud in fiscal year 2012, up from $14 billion a year earlier, he said. "It's one of the biggest challenges that faces the IRS today," Miller said. "We're doing much better on all fronts but we have much more to do." Despite the increase in investigations, the agency still had a backlog of 300,000 cases of people waiting for legitimate refunds after they were victims of fraud. It takes an average of six months to resolve a case, Miller said. "The IRS have put a lot of resources on it, but they always seem to be behind the curve," said Keith Fogg, a tax professor at Villanova University School of Law. Electronic filing, which now accounts for 80 percent of returns and was introduced to speed up delivery of refunds, has made the system more vulnerable to fraud. The IRS is seeking to speed up the loading of data from W-2 payroll forms issued at the beginning of the tax season, a time lapse which gives fraudsters a window of opportunity to file using false data. The IRS is also looking for ways to authenticate the identity of tax filers at the time of filing to pre-empt fraud, as well as working with the Social Security Administration to limit access to a registry of social security data of deceased tax payers, the so-called "Death Master File", a frequent target of fraud. "We will not be prosecuting our way out of this. That's not going to be the answer. We're going to have to make it more and more difficult for criminals to profit from this behavior," said Miller. "If they're not successful they will move onto something else." (Editing by Mary Milliken and Claudia Parsons )

Volkswagen CEO to take 20 percent pay cut in 2012: magazine

Sun Feb 17, 2013 7:33am EST

http://www.reuters.com/article/2013/02/17/us-volkswagen-ceo-salary-idUSBRE91G05O20130217

FRANKFURT - Volkswagen AG ( VOWG_p.DE ) Chief Executive Martin Winterkorn will be paid 14 million euros ($18.7 million) for 2012, 20 percent less than the previous year, German magazine Der Spiegel reported.

Der Spiegel, which did not cite sources, also said VW's supervisory board would decide on a new compensation package for all management board members at its next meeting on February 22. In future, bonuses will only to be paid to board members if the company's profit reaches at least 5 billion euros, the magazine reported. VW declined to comment on the report. Winterkorn himself proposed that he should take a pay cut, Der Spiegel reported last week, as the company prepares for wage talks with production staff in western Germany. Current rules on executive pay, combining fixed salary, bonuses and profit incentives, would boost Winterkorn's total compensation for 2012 to about 20 million euros from a record 17.5 million euros in 2011, a company official previously said. (Reporting by Christoph Steitz and Jan Schwartz; Editing by Helen Massy-Beresford)

Maker's Mark reverses decision to lower alcohol content

Sun Feb 17, 2013 3:06pm EST

http://www.reuters.com/article/2013/02/17/us-beam-makersmark-idUSBRE91G0EM20130217

- Maker's Mark said it was taking back a decision to reduce the alcohol content in its bourbon because of a large number of complaints from customers.

"Effective immediately, we are reversing our decision to lower the ABV (alcohol by volume) of Maker's Mark, and resuming production at 45 percent alcohol by volume," the company said on its website. Maker's Mark had decided to lower the alcohol content due to supply constraints amid strong demand, but it said an "overwhelming response" had led it to reverse that decision. Bourbon and Tennessee whiskey volume rose 5 percent in 2012, fueled by new products, including flavored bourbons. Recent popularity of bourbon has spurred interest in other American whiskeys, with rye volume up 50 percent, though sales are still quite small. Maker's Mark is made by Beam Inc, which also owns the Jim Beam and Knob Creek brands. (Reporting By Nicola Leske ; Editing by Nick Zieminski)

Top 100 arms makers' arms sales fall in 2011: study

Sun Feb 17, 2013 6:05pm EST

http://www.reuters.com/article/2013/02/17/us-arms-spending-idUSBRE91G0GT20130217

STOCKHOLM - Arms sales by the 100 biggest weapons makers fell for the first time since the mid-90s in 2011 as economies slowed and military equipment purchases were reduced for operations in Afghanistan and Iraq, a leading think-tank said on Monday.

Sales totaled $410 billion, a 5-percent fall adjusted for currency swings, from $411 billion in 2010, the Stockholm International Peace Research Institute (SIPRI), which carries out independent research on international security, armaments and disarmament said in a statement. SIPRI, which has been compiling the list since 1989, does not include Chinese-based firms due to lack of available data. "Austerity policies and proposed and actual decreases in military expenditure as well as postponements in weapons program procurement affected overall arms sales in North America and Western Europe," it said in a statement. "The drawdowns in Iraq and Afghanistan and the sanctions on arms transfers to Libya also played a role." Spending fell for the first time since the mid-90's, when defense spending had been falling after the end of the Cold War, said Susan Jackson, a researcher at SIPRI. Sales growth had already slowed in 2010, to 1 percent from 8 percent in 2009, as the withdrawal of foreign troops from Iraq held back demand. To the extent arms makers are affected by economic swings, many are late-cyclical as they have long delivery times and long-running contracts with governments. Of the firms monitored by the group in 2011, 74 were based in the United States and western Europe, generating 90 percent of the sales, roughly unchanged from 2010. The top spots were little changed from 2010 with U.S. firm Lockheed Martin ( LMT.N ) still the biggest, U.S. Boeing ( BA.N ), overtaking British BAE Systems ( BAES.L ) as number two, and General Dynamics ( GD.N ) overtaking Northrop Grumman ( NOC.N ) as number four. SIPRI said a strong recent trend among big arms makers was diversification into cyber-security - protecting computers and networks against intrusions and attacks - as public spending in this area remained a privileged area in Western countries despite budget austerity. "Diversifying into cybersecurity enables arms-producing companies to widen their civilian customer base, e.g. to reach governmental agencies or private operators of critical infrastructures, and at the same time develop technical competences for electronic warfare for the military market," it said. In the 2002-2011 period, arms sales by the top 100 firms grew 51 percent, SIPRI said. (Reporting by Anna Ringstrom; Editing by Jason Webb )

Germany wants comprehensive EU-U.S. free trade deal: minister

Sun Feb 17, 2013 7:44am EST

http://www.reuters.com/article/2013/02/17/us-trade-eu-germany-idUSBRE91G05S20130217

BERLIN - German Economy Minister Philipp Roesler wants the European Union and the United States to reach a comprehensive transatlantic free trade agreement rather than settle for the limited deal some southern EU nations favor.

Roesler told Der Spiegel magazine on Sunday he and the German government want a sweeping free trade deal, while France and southern EU nations, by contrast, want to protect their agriculture industry with regulations and also keep out genetically modified U.S. foodstuffs, the magazine said. Roesler has backing from a study by the Ifo economic institute think tank that said the advantages of the free trade zone would be larger with a comprehensive deal. "We're striving to achieve a major breakthrough and we're not just looking for a minimal consensus," Roesler told Der Spiegel. "It would be damaging to put limits on the agenda for the talks beforehand and exclude certain sectors." The Ifo study, carried out for the Economy Ministry, found that per capita gross domestic product (GDP) would rise by 0.1 percent in the EU and 0.2 percent in the United States with the free trade deal if only customs barriers were abolished. But more could be expected if the governments introduced common technical standards, safety standards and competition rules, Ifo said. The United States and the EU aim to start negotiating a vast free trade pact by June, but the plan faces many hurdles before it could help revive the world's top two economies. The deal would be the most ambitious since the founding of the World Trade Organization (WTO) in 1995, embracing half of world output and a third of trade. But after a year of preparatory discussions between Brussels and Washington, major differences remain, such as EU resistance to importing U.S. foodstuffs that are genetically modified. Once the U.S. Congress is notified and all 27 EU states assent to the talks going ahead, the sides hope for a deal by the end of 2014 - a tight deadline in international trade talks. The deal has support at the highest level - it was mentioned by U.S. President Barack Obama in his speech to Congress and cast as a central pillar of Britain's G8 presidency this year. With import tariffs between the two already limited, at an average of 4 percent, talks will focus on harmonizing standards - from car seat belts to household cleaning products - and regulations governing services. (Reporting By Erik Kirschbaum ; Editing by Helen Massy-Beresford)

Novartis golden handshake angers shareholders, politicians

Sun Feb 17, 2013 7:01am EST

http://www.reuters.com/article/2013/02/17/us-novartis-vasella-idUSBRE91G05720130217

ZURICH - Pharma group Novartis' ( NOVN.VX ) decision to pay up to 72 million Swiss francs ($77.94 million) to outgoing chairman Daniel Vasella has unleashed a wave of indignation among activist shareholders and politicians.

Vasella will receive the "golden handshake" in tranches of 12 million francs over six years if he respects the non-competition clauses of his contract, triggering criticism across political camps. "This self-serve mentality undermines confidence in the economy as a whole. It causes enormous damage to the social cohesion in our country," socialist justice minister Simonetta Sommaruga told Swiss Sunday newspaper Sonntagsblick. Vasella, who has been chairman of Novartis since 1999, serving as both chairman and CEO for 11 years from 1999 to 2010, gave details on the amount he is entitled to on Friday, following reports on website insideparadeplatz.ch. He said in a statement Novartis would pay him a maximum of 72 million francs "according to fair market value" if he refrained from making his knowledge and know-how available to competitors, adding he intended to donate the whole amount, net of taxes, to charity. Novartis spokesman Eric Althoff said Vasella did not wish to comment further before Friday's annual general meeting in Basel, at which he is not going to stand for re-election as chairman. Vasella faces stiff criticism from activist shareholder groups. "This is scandalous," Roby Tschopp, head of shareholder group Actares, told Reuters. "All we can do is try to motivate as many shareholders as possible to refuse to discharge the board of directors on Friday." He said, however, it was unlikely a majority of shareholders would refuse to grant discharge of liability to the board because information on Vasella's golden handshake had come too late to be taken into account by some bigger shareholder groups. "It only came out because it was leaked. That is not a transparent way of communicating," Tschopp said. Swiss newspaper NZZ am Sonntag reported another small shareholder group, Ethos, would also refuse to grant discharge. The news on Vasella's million-franc package is likely to boost support for a March 3 referendum to give shareholders a veto over excessive manager pay. Polls published on Sunday showed almost two thirds of Swiss voters favor the initiative, the brainchild of businessman Thomas Minder. Hans Hess, chairman of industry lobby Swissmem, told newspaper SonntagsZeitung that Vasella's contract was "embarrassing", while Pascal Gentinetta, head of business lobby economiesuisse, said it was a tough setback for the lobby's campaign against the referendum. Economiesuisse has said the proposals would be a major blow for Switzerland's economy, pushing companies to move parts of their business abroad and prompting layoffs. ($1 = 0.9238 Swiss francs) (Editing by Helen Massy-Beresford)

Cargill to close Canada grain elevator

Fri Jun 10, 2011 9:15am EDT

http://www.reuters.com/article/2011/06/10/us-cargill-canada-idUSTRE75934I20110610

WINNIPEG, Manitoba - Cargill Inc CARG.UL said Friday it will close its grain elevator and crop input facility at Strathroy, Ontario as of July 1.

The U.S.-based agribusiness, which is also Canada's third-largest grain handler, said it will move its Strathroy business to its existing location in nearby Melbourne, Ontario, which is newer and able to handle greater storage. (Reporting by Rod Nickel; Editing by John Picinich)

China May trade gap smaller than expected

Fri Jun 10, 2011 8:08am EDT

http://www.reuters.com/article/2011/06/10/us-china-economy-trade-idUSTRE7591EP20110610

BEIJING - China posted a smaller-than-expected trade surplus in May of $13.1 billion because of soaring imports and weaker global demand growth, giving mixed signals about how the economy fared when some of its best export customers faltered.

China's sales to the United States and the European Union slumped to their weakest since late 2009, excluding Lunar New Year holidays, underlining the view that the world economy is stumbling. Still, as an engine of growth, import figures suggested China's economy is expanding at a healthy, if not stellar, pace. Crude imports stayed at elevated levels and coal volumes rose by more than a fifth from both April and a year earlier. "The overall strength in imports suggests that China's domestic demand has not slowed as much as the market may have feared," said Wang Tao, an economist with UBS in Beijing. Exports rose 19.4 percent in May from a year earlier, slowing from the 29.9 percent pace in April, while import growth accelerated to 28.4 percent from 21.8 percent in April, the customs agency said on Friday. The export growth was shy of economists' expectations for a 21 percent rise, while the imports came in faster than the consensus call for 22.5 percent. The trade surplus rose from $11.4 billion in April, but was far below forecasts in a Reuters poll for $18.6 billion. "The general message is neither weak nor strong," said Ken Peng, an economist with Citigroup in Beijing. Indeed, the data offered a little something for everyone, which may explain why financial markets showed no significant reaction. Trade data for China is always closely watched because it is the world's biggest exporter and second-biggest economy. May's figures took on even greater significance as economists try to gauge whether a slowdown in the world economy is a just a blip or the start of a more troubling slump. Those who think the world economy will revive in the coming months could point to China's stronger-than-expected imports as evidence that domestic demand remains healthy in a region that is vital to global growth. Those who worry that a protracted slowdown looms could find supporting evidence in the weaker-than-expected export figures. With inflation running above its comfort zone, Beijing has taken steps to cool the economy. Economists are monitoring the economy to see whether those inflation-fighting efforts can thread the needle -- cool overheating areas such as property without smothering overall demand. UNCERTAINTIES Exports to the United States rose by a modest 7.2 percent from a year ago, well off the 25 percent growth pace in April. For the European Union, exports rose 13.2 percent, less than half the rate recorded in April. Outside of the volatility caused by Lunar New Year holidays, both marked the weakest exports since November 2009, when the world economy was still feeling the aftermath of the global financial crisis. Economists had widely expected export growth to slow after a series of manufacturing surveys showed weaker orders from most of China's big trading partners. But the pace slowed a tad more than economists had predicted. On a seasonally adjusted basis, exports in May rose 16.6 percent from a year earlier but fell 4.4 percent from the previous month. Imports gained 23.1 percent year-on-year but were down 4.5 percent month-on-month. Chen Yong, an analyst at Huatai United Securities in Shanghai, said the pullback in May showed "there are still uncertainties hanging over the world recovery." "The trade surplus in May is still at a relatively high level, which means there remains huge pressure for yuan appreciation," Chen said. Chinese factory activity expanded in May at the slowest pace in at least nine months, two purchasing managers' indexes showed earlier this month. Imports surged following a lackluster showing in April. The data showed that crude imports topped 5 million barrels per day for a fifth consecutive month, although analysts suspected some of the shipments are destined for storage as China builds up its emergency reserves. It also indicated May coal arrivals rose 20.7 percent from the month before, evidence of China's huge power demand. Power shortages have constrained growth, and utilities stepped up coal orders to prepare for summer demand. For Wu Zhongjun, director for Yiwu Lianfa clothing factory in Zhejiang province, increased power supplies would ease at least one concern. He said his domestic business was doing OK but export orders had fallen by more than a third this year. "We have to deal with power cuts, rising wages, and also a labor shortage that has also been a national problem," he said in an interview with Reuters Insider. "Under such circumstances, I feel personally that small private businesses like ours are now the under-privileged group." (Additional reporting by Royston Chan in Yiwu; Writing by Emily Kaiser: Editing by Ken Wills and Neil Fullick)

Diageo close to settlement with SEC in bribery probe: report

Thu Jun 9, 2011 8:47pm EDT

http://www.reuters.com/article/2011/06/10/us-diego-idUSTRE75907C20110610

- Diageo, the world's largest spirits group, is close to a settlement with the U.S. Securities and Exchange Commission to end a long-running bribery investigation, the Financial Times reported.

The settlement talks are at an advanced stage and the British maker of Smirnoff vodka, Captain Morgan rum and Guinness beer has agreed to pay between $10 million and $20 million, the paper reported citing people familiar with the matter. The U.S. Department of Justice is not part of the settlement, the financial daily said. Diageo was not immediately available for comment and the SEC has declined comment. (Reporting by Abhishek Takle in Bangalore; Editing by Bernard Orr )

ECB puts out new version of Constancio comments on Greece

Fri Jun 10, 2011 3:28pm EDT

http://www.reuters.com/article/2011/06/10/us-ecb-constancio-statement-idUSTRE75942Z20110610

LONDON - The European Central Bank issued a new statement on behalf of Vice President Vitor Constancio on Friday, altering his earlier comments on a Greek rescue plan.

Earlier, Constancio said that during his news conference on Thursday, ECB President Jean-Claude Trichet had only ruled out mechanisms that would create a credit event. "The president excluded many things yesterday but he did not say that he had excluded extensions of maturities. What he did say is that he excluded a scheme that could lead to a credit event or selective default," Constancio said. The ECB later said Constancio was replacing his earlier statement. The new one read: "President Trichet made clear that the ECB's Governing Council excludes all concepts that are not purely voluntary or have any element of compulsion, that entail any credit event or that entail any default or selective default. The ECB said Constancio also recalled that Trichet stated: "Whatever happens, it is not the ECB's decision but the responsibility of the governments. The ECB will apply its rules and framework as regards the soundness of counterparties for monetary policy operations and the quality of the collateral accepted in such operations." (Writing by Mike Peacock)

Manuel: focusing on South Africa, not in IMF race as yet

Fri Jun 10, 2011 5:09am EDT

http://www.reuters.com/article/2011/06/10/us-imf-manuel-idUSTRE7591GT20110610

JOHANNESBURG - Former South African finance minister Trevor Manuel all but ruled himself out of the race to head the International Monetary Fund on Friday, saying his focus was on his own country.

"Today is the deadline. I haven't put my hat into the ring as I speak to you," he told public radio station SAFM. "My adrenaline is flowing about South Africa right now. It's where my focus is." "We've got to turn this country round," he added. (Reporting by Peroshni Govender , Writing by Ed Cropley)

Ally Financial delaying IPO: sources

Thu Jun 9, 2011 9:56pm EDT

http://www.reuters.com/article/2011/06/10/us-allyfinancial-ipo-idUSTRE75907120110610

NEW YORK - Ally Financial, the auto and mortgage lender majority-owned by the U.S. government, is delaying its initial public offering due to bad market conditions, two sources familiar with the situation told Reuters.

The IPO roadshow was expected to launch late this week or early next week, which would have brought the company public before the U.S. July 4 holiday. The S&P 500 index .SPX closed up 0.74 percent at 1,289 on Thursday, but had lost more than 6 percent in the last six days while Nasdaq had nearly erased its gains for the year. Ally Financial's IPO is expected to raise around $6 billion, including both common stock and convertible securities, one of the sources said. It will move ahead when the market improves, that source said. The other source said that the IPO could now come in late July or early August, or after the September U.S. Labor Day holiday. The sources declined to be named as the information is not public. Ally and the U.S. Treasury declined comment. Bad mortgage loans forced the U.S. Treasury to pour $17.2 billion into Ally during the financial crisis. It has recovered some of that money through repayments and dividends and continues to hold a 73.8 percent stake in Ally, formerly known as GMAC. The U.S. government is currently in the process of exiting other remaining financial crisis-era investments including GM and AIG. It began exiting top U.S. automaker General Motors Co ( GM.N ) with a record $23.1 billion IPO last November. In May, it sold 15 percent of its stake in insurer American International Group Inc ( AIG.N ). GM shares closed on Thursday at $29.45, or 10.8 percent below their $33 IPO price. AIG's shares have also retreated since its $8.7 billion share sale. That sale raised less than the $10 billion to $20 billion some banking sources had suggested earlier in the year. Apart from the Treasury, Ally's stockholders include private equity firm Cerberus Capital Management, with a 9 percent stake, and GM, which owns 4 percent directly and 6 percent through a trust. Citi, Goldman Sachs, JPMorgan, Morgan Stanley, Barclays Capital and Deutsche Bank Securities are the underwriters on the IPO. (Reporting by Clare Baldwin and Paritosh Bansal; editing by Carol Bishopric, Bernard Orr )

May budget deficit less than half prior year's

Fri Jun 10, 2011 7:47pm EDT

http://www.reuters.com/article/2011/06/10/us-usa-budget-deficit-idUSTRE75957D20110610

WASHINGTON - The budget deficit fell by more than half in May from year-earlier levels to $57.64 billion as tax revenues continued to rise, the Treasury Department reported on Friday.

The monthly deficit was far below the $140 billion gap that economists surveyed by Reuters had forecast, and was down from $135.93 billion in May 2010. Revenues have been relatively strong, given a relatively high rate of national unemployment, but lawmakers still face an urgent need to reach a deal on budget and debt issues to try to get the deficit onto a long-term downward trajectory. That necessity is heightened by the fact that the 'baby boom" generation born after World War Two is beginning to retire in waves and to put more demands on retirement and medical care systems. The government's financial year starts on October 1. During the first eight months of fiscal 2011, which ends September 30, the cumulative budget deficit reached $927.44 billion. That is down from $935.61 billion in the comparable period in fiscal 2010. The Congressional Budget Office, Congress' watchdog agency, forecasts that for all of fiscal 2011 the government will post a $1.4 trillion deficit -- a gap between spending and income that must be covered by borrowing. BAILOUT COSTS FALLING Government spending during May declined to $232.55 billion from $282.72 billion a year earlier. The spending figure was helped by a one-time adjustment made by Treasury in the estimated cost the government will incur for the Troubled Asset Relief Program -- the $700 billion program to bail out banks and automakers -- which had the effect of lowering the month's outlays by $45 billion. As banks and others that received bailouts during the 2007-2009 financial crisis repay the money, the government has been steadily ratcheting down its estimates of how much taxpayers will eventually be left to swallow from TARP. Receipts during May -- primarily from taxes and mostly on individuals -- rose 19 percent to $174.91 billion from $146.79 billion in May 2010. The United States hit its legally set $14.3 trillion debt ceiling in mid-May, forcing Treasury to juggle funds while the Obama administration and Republican lawmakers feud about raising the borrowing limit. AUG. 2 STILL CRUCIAL Treasury warns it will run out of wiggle room to keep borrowing on August 2, putting the country at risk of a historic default on U.S. debt if Congress has not acted by then. Asked whether strong May revenues meant Treasury might push back the date for risking default, a Treasury official said the numbers were already accounted for when Treasury last estimated that August 2 was when its maneuvering room expires. On Thursday, lawmakers agreed to meet more frequently to try to reach a deficit-reduction deal though there are still wide differences between Democrats and Republicans over how to proceed, including whether taxes will need to be raised. Republicans want deep spending cuts, insisting that tax hikes will crimp an already slow-growing economy and make it all the more difficult to create jobs because companies won't be willing or able to hire. But there is rising pressure at home and abroad for lawmakers to reach a debt deal. In the past few weeks, three major credit rating agencies have warned they may downgrade the ratings on U.S. Treasury bonds if the debt and deficit standoff is not resolved soon. Moody's said it wanted to see substantial action by mid-July. China -- now the U.S.'s biggest creditor and a key source for borrowed money to cover the shortfall between Washington's spending and its income -- issued its own warning this week. An adviser to China's central bank scolded U.S. lawmakers for "playing with fire" in debt talks. China holds about $1 trillion of U.S. outstanding debt and any move by Beijing to dump some of it or even limit buying would potentially trigger a loss of confidence in U.S. economic management. (Reporting by Glenn Somerville; Editing by Neil Stempleman )

Siemens confirms corruption case in Kuwait

Fri Jun 10, 2011 3:36am EDT

http://www.reuters.com/article/2011/06/10/us-siemens-kuwait-idUSTRE75919420110610

MUNICH/FRANKFURT - Siemens ( SIEGn.DE ) said it had discovered evidence of corruption at its business in Kuwait and had involved authorities.

"We uncovered the case ourselves, involved the authorities and took disciplinary measures," a spokesman for the company said on Friday. German daily newspaper Financial Times Deutschland earlier cited a senior prosecutor in Munich as saying arrests had been made in connection with a fresh investigation at Siemens. The paper cited judicial sources as saying at least two managers had been arrested, and an arrest warrant has been issued for a third manager who had worked in Kuwait. The prosecution in Munich was not immediately available for comment. Siemens was embroiled in Germany's biggest post-war corporate corruption scandal that started in 2006, culminating in about 1 billion euros ($1.46 billion) in fines and penalties and the departure of its chairman and chief executive. "One-off cases can never be ruled out, but we can rule out systematic misconduct," the spokesman for Siemens said. Shares of Siemens were 0.2 percent lower at 91.04 euros by 3:14 a.m. EDT, in line with Germany's blue-chip index .GDAXI . (Reporting by Andreas Kroener and Josie Cox ; Additional reporting by Patricia Gugau; Editing by Hans Peters) ($1=.6846 Euro)

German MPs agree resolution on Greek aid

Thu Jun 9, 2011 8:02pm EDT

http://www.reuters.com/article/2011/06/10/us-eurozone-greece-germany-deputies-idUSTRE7585Z920110610

BERLIN - German members of parliament late on Thursday agreed a joint motion for a resolution demanding the fair participation of private creditors in future aid to Greece, several participants said.

The deputies from all three parties in Chancellor Angela Merkel's center-right coalition agreed to have a say in agreements for new aid packages, several of them said after parliamentary group meetings had finished. "The German parliament urges the government to only agree to new financial aid for Greece if an appropriate participation of private creditors has been introduced," the resolution said. "That way a fair burden sharing between public and private sides can be reached." The resolution also demands for renewed IMF participation for any new rescue package and demands Greece to secure a noticeable part in its debt reduction through an "ambitious and short-term realizable privatization program." On Friday, the resolution will be put to a vote in parliament, where the ruling coalition has a majority of 19 votes. The resolution will become part of Germany's negotiating position, presented by Wolfgang Schaeuble at the meeting of finance ministers on June 20 and later by Chancellor Angela Merkel at the EU summit on June 24. It is non-binding. Late on Thursday at the parliamentary group meetings, there were eight votes against the resolution and four abstentions among the conservative parliamentary group. The Free Democrats faction also voted in favor of the resolution with one dissenting and one abstention vote. Both groups fiercely debated risks and opportunities of a new aid package for Greece and Peter Altmaier, who leads Merkel's conservative parliamentary group, said no one in the conservative group was in favor of a hard restructuring. Free Democrat parliamentarian Frank Schaeffler was, according to participants, against a new aid package for Greece -- though 91 deputies voted in favor of it. Schaeffler is one of the loudest dissenting voices against Greek aid in the FDP. Rainer Bruederle, FDP parliamentary floor leader, said his party strongly supported the joined resolution, the long debate was worth it. FDP party leader Philipp Roesler added: "The FDP stands clearly for a strong euro." Meanwhile, the leader of Germany's Social Democrat opposition, Sigmar Gabriel, emphasised his call for a hard restructuring of Greek debt and an extensive participation of private creditors after a meeting of his parliamentary group "I don't think that there is a way around a proper restructuring with a clear creditor contribution, in fact at a larger degree than through an extension of credit maturities," Gabriel said. How to involve the private sector is hotly contested within the single currency bloc. German Finance Minister Wolfgang Schaeuble in a letter earlier this week proposed a swap in which private debt holders would trade in their Greek government bonds for new ones, giving Greece an extra seven years to work through its debt. France on the other hand, was against any form of debt restructuring, but sources familiar with government thinking said on Thursday it could back a private sector rollover if a voluntary formula could be found to avoid wider damage markets. (Reporting by Gernot Heller and Thorsten Severin; writing by Erik Kirschbaum and Eva Kuehnen ; Editing by Gary Hill )

Dutch back German government on Greek bailout terms

Fri Jun 10, 2011 3:28pm EDT

http://www.reuters.com/article/2011/06/10/us-dutch-greece-idUSTRE7593BB20110610

AMSTERDAM - The Netherlands on Friday backed Germany over the participation of the private sector in a new bailout package for debt-laden Greece, an issue that has set Berlin on a collision course with the European Central Bank.

"We view the German proposals favorably," Dutch Prime Minister Mark Rutte told a televised press conference in The Hague. "The position of (German Finance Minister Wolfgang) Schaeuble and (German Chancellor Angela) Merkel seems reasonable, rolling over the debt a bit and having the private sector take some of the responsibility, possibly on a voluntary basis," he said. Germany has so far defied a warning from the European Central Bank that private sector participation in a second bailout of Greece could trigger a "credit event" that would roil financial markets. In a letter to parliament this week, Dutch Finance Minister Jan Kees de Jager said it was too early to state what his country's involvement in a new bailout would be. "We need to get more information about how strict the new package for Greece will be, whether they will take extra measures and sufficient reforms to make the economy grow again so they can repay later," De Jager told reporters following a cabinet meeting in The Hague on Friday. "As long as these conditions have not been fulfilled, the Netherlands will not say yes to a support package for Greece," De Jager added. Rescuing Greece from its debt woes has emerged as a divisive political issue in the Netherlands, the euro zone's fifth-largest economy, whose coalition government relies on the support of the anti-immigration and eurosceptic Freedom Party. In a publicity stunt, Freedom Party leader Geert Wilders, who opposes Dutch participation in the new bailout, attempted on Friday to deliver a 1.5-meter-long "drachma note" to the Greek embassy in The Hague, which refused to receive him. (Additional reporting by Tjibbe Hoekstra, editing by Sara Webb and Catherine Evans )

Canada's TMX undeterred as hostile bid looms

Fri Jun 10, 2011 3:29pm EDT

http://www.reuters.com/article/2011/06/10/us-exchanges-tmx-hostile-idUSTRE7592PZ20110610

NEW YORK/TORONTO - The heads of TMX Group Inc ( X.TO ) and the London Stock Exchange Group Plc ( LSE.L ) said on Friday it is full steam ahead for LSE's friendly takeover of the Canadian market operator even though a hostile bid for TMX could come "any day now."

The expected $3.7 billion counteroffer from the Maple Group consortium of Canadian banks and pension funds will throw a new hurdle in the path of the LSE's offer to buy the Toronto Stock Exchange parent for about $3.5 billion. But TMX Chief Executive Tom Kloet said Maple has yet to put forth a "genuine offer." The CEOs of the two exchanges said they were on a "roadshow" to boost the credentials of the LSE deal ahead of the June 30 shareholder vote. LSE's planned takeover must pass muster with the Canadian government, which will decide if it meets the terms of the Investment Canada Act, which says foreign takeovers must carry a "net benefit" to Canada. "We think we're in quite good shape now," Kloet told a global exchanges conference hosted by Sandler O'Neill in New York on Friday. He said the company is "in active dialogue" with the government over the deal, which was announced in February. "We remain confident that we're on track for that approval." Kloet and LSE Chief Executive Xavier Rolet said their bid was different from other transatlantic exchange tie-ups in that it focused on growth and building new businesses, while other combinations have focused on cost and revenue savings. With less than three weeks before shareholders vote, Maple Group's circular, its formal pitch, is expected soon. That will provide additional details on the structure of Maple's $48 a share offer. A source with knowledge of the deal said the circular will not give specifics on the valuations for Alpha Group, Canada's biggest alternative trading system, and for the CDS clearinghouse. Both entities are controlled by Canada's big banks and could be put under TMX's umbrella if the Maple deal wins regulatory and shareholder approval. The Maple bid, once official, will face antitrust scrutiny because of the Alpha and CDS proposals give the new entity a big share of the Canadian market. Rolet said on Friday the Maple bid was subject to "a competition review that at best looks highly problematic." More financial institutions are set to join the Maple bid, although none have yet signed on, and time is running short for Maple to persuade TMX shareholders that its "all-Canadian" option is better for the country's capital markets. "There's a lot of emotion in that (Maple) deal, I'm not really sure why or where it comes from," Rolet told Reuters on the sidelines, calling the emotional component surprising. Responding to what he called mischaracterizations, Kloet said TMX and LSE did not accelerate the shareholder vote date, noting June 14 was the original target. He added the date could be changed if the pair agreed, but that wasn't his intention. Shares of TMX were down 37 Canadian cents at C$43.93 on the Toronto Stock Exchange on Friday afternoon. ($1=$0.98 Canadian) (Additional reporting by Pav Jordan ; editing by Janet Guttsman )

Lawyers cry foul as Khodorkovsky sent to secret jail

Fri Jun 10, 2011 1:16pm EDT

http://www.reuters.com/article/2011/06/10/us-russia-khodorkovsky-idUSTRE7594WG20110610

MOSCOW - Jailed former oil tycoon Mikhail Khodorkovsky was transferred from Moscow to a prison camp in an undisclosed location, his lawyers said on Friday, decrying the move as an attempt to block his parole hearing.

Once Russia's richest man, Khodorkovsky was jailed in 2003 after falling foul of the Kremlin under then President Vladimir Putin. He is serving a 13-year sentence and is due to be released in 2016. Khodorkovsky's defense team, who claim he is a political prisoner, said he filed again for parole on Tuesday after a Moscow court refused to hear a first request on the grounds that he did not supply the proper documents. Lawyer Vadim Klyuvgant said the transfer was aimed "at creating an artificial delay of the hearing of our client's application for parole." He claimed it would be easier for the authorities to reject his request for early release if the review was held far from Moscow and from journalists who could spotlight violations. "It is clear that they are trying to prevent hearing the petition for parole in Moscow since there are no legitimate grounds for a denial," he said in a statement on his client's website. Khodorkovsky's lawyers said both they and his wife were earlier denied a meeting with the jailed former head of oil major Yukos on the grounds he was being readied for the journey. The European Court of Human Rights ruled last week that Russia violated Khodorkovsky's rights during his 2003 arrest and jailing on charges of fraud and tax evasion and ordered Moscow to pay him 24,500 euros ($35,300), though it found no firm proof the case was politically motivated. Ahead of a second trial against him, Khodorkovsky was transferred in February 2009 to a Moscow jail from a Siberian prison camp outside Chita, where he was serving his first sentence. It was unclear Friday whether he was sent back to Chita or another detention facility. Itar-tass state news agency cited a law enforcement source confirming that Khodorkovsky had been transferred and said relatives would be informed of his new location within 10 days. Moscow court and prison authorities could not immediately reached for comment by Reuters. Khordorkovsky built a fortune by buying state assets cheaply after the collapse of the Soviet Union in 1991, but his business empire, which produced more oil than OPEC member Qatar, was split up and sold after his arrest in 2003. He has said repeatedly that his convictions for fraud, theft and money laundering were ordered by senior officials who wanted to carve up his oil company and take revenge for a perceived challenge to Putin's authority. Russian state-controlled oil firm Rosneft eventually bought the largest production assets, including Yuganskneftegaz, making Rosneft Russia's biggest oil producer. Khodorkovsky and his business partner Platon Lebedev were sentenced to stay in jail until 2017 in a second trial in December, but the sentence was reduced by one year on appeal. President Dmitry Medvedev said last month it would not be dangerous to release Khodorkovsky, but Prime Minister Putin has taken a tougher stance, comparing the former tycoon to American gangster Al Capone. (Writing by Alissa de Carbonnel; Editing by Louise Ireland )

Lagarde "confident" about arbitration payout case

Fri Jun 10, 2011 4:45am EDT

http://www.reuters.com/article/2011/06/10/us-imf-lagarde-payout-idUSTRE7591GS20110610

LISBON - French Economy Minister Christine Lagarde said on Friday she was confident about a judicial review of her role in a 2008 arbitration payout.

"I am always confident," Lagarde told reporters in Lisbon, where she will attend the African Development Bank annual meeting. Three judges will meet on Friday to discuss whether the case brought against her by opposition deputies merits a formal probe, and a judicial source said they will likely seek extra time before deciding. Lagarde is the favorite to head the International Monetary Fund after her compatriot Dominique Strauss-Kahn quit the post last month to defend himself against a charge of attempted rape. The deadline for nominations falls today. (Reporting by Carolyn Cohn , editing by Mike Peacock)

Obama to nominate Gruenberg to head FDIC: White House

Fri Jun 10, 2011 6:37pm EDT

http://www.reuters.com/article/2011/06/10/us-financial-regulation-fdic-idUSTRE7596T220110610

WASHINGTON - President Barack Obama plans to nominate Martin Gruenberg to be the next chairman of the Federal Deposit Insurance Corp, a top U.S. banking regulator, the White House said on Friday.

Gruenberg joined the FDIC board in 2005 and is currently the regulator's vice chairman. The term of the current chairman, Sheila Bair, is up in June. The post requires Senate confirmation.

Former TBW execs get prison time for roles in fraud

Fri Jun 10, 2011 2:01pm EDT

http://www.reuters.com/article/2011/06/10/us-mortgage-fraud-idUSTRE7594KC20110610

Alexandria, Virginia - Two former senior Taylor, Bean & Whitaker Mortgage Corp executives were sentenced on Friday to several years in prison for their roles in a nearly $3 billion fraud that took down the big lender and a major bank.

The fraud ran more than seven years until August 2009 when TBW collapsed after the U.S. housing market imploded, taking Colonial BancGroup Inc's CBCDQ.PK Colonial Bank with it and putting hundreds of people at the firm out of work. Company and bank officials were accused of trying to cover up enormous losses by moving money between accounts at Colonial Bank and selling mortgage loans that did not exist, were worthless or already had been sold. The Obama administration elicited guilty pleas from six senior executives. TBW's former chairman, Lee Farkas, was convicted by a jury in April on 14 counts of bank, securities and wire fraud as well as conspiracy. "They knew that without their fraud scheme, TBW would fail," said Neil MacBride, the U.S. attorney for eastern Virginia. "They allowed Lee Farkas to control and manipulate them into doing what they knew was wrong, and now they will pay for their crimes." It is one of the few cases in which prosecutors have been able to penetrate the executive suites of a major firm in the wake of the 2008 global financial crisis. Most prosecutions have involved lower-level employees or much smaller firms. Desiree Brown, TBW's former treasurer, was sentenced by District Judge Leonie Brinkema to six years in prison after she tearfully acknowledged her wrongdoing. She pleaded to one count of conspiracy to commit bank, wire and securities fraud. "It was never my intent to commit a crime," she told the court. "It was always my intent to fix the problem." Prosecutor Patrick Stokes sought an eight-year sentence, telling the judge that Brown had "a substantial role in the fraud" and that she had been "blinded by her loyalty to Mr. Farkas." Her attorney urged a lesser sentence, suggesting five years and noting that she was just a "country girl from Nebraska with a high school" education. She started as a receptionist before working her way up in the company. Brinkema also sentenced TBW's former president, Raymond Bowman, to 30 months in prison. He had pleaded guilty to a conspiracy fraud charge as well as for lying to investigators when they raided the mortgage firm two years ago. Prosecutors had sought five years in prison. Brinkema gave lower sentences than sought by prosecutors. One prosecutor, Charles Connolly, urged the stiff penalties be imposed because "there needs to be a message sent to the Street" that the conduct was unacceptable. However, the judge said the two were unlikely to commit crimes again, noted their cooperation and said that they were likely decent people. However, she said it was a massive fraud and the sentences would serve as a deterrent to others. Connolly told the judge that the TBW investigation was ongoing. Farkas is due to be sentenced on June 27. Before its collapse, TBW was one of the country's largest privately-held mortgage lenders, doing some $20 billion in mortgage sales a year, and Colonial Bank was one of the top 50 U.S. banks before regulators took it over. Authorities have estimated the fraud at nearly $3 billion. The executives were also accused of misappropriating money from one of its own funding mechanisms which had two big investors, Deutsche Bank AG ( DBKGn.DE ) and BNP Paribas SA ( BNPP.PA ). As losses mounted at TBW, the firm tried to drum up capital to help Colonial Bank win $553 million in funding from the federal bank bailout program known as the Troubled Asset Relief Program, prosecutors said. No money was disbursed. The cases are: USA v. Bowman, No. 11-cr-118 and USA v. Brown, No. 11-cr-84 in U.S. District Court for the Eastern District of Virginia. (Editing by Robert MacMillan )

GM recalls 50,500 Cadillac SRXs in North America

Fri Jun 10, 2011 11:29am EDT

http://www.reuters.com/article/2011/06/10/us-gm-recall-idUSTRE7592QH20110610

DETROIT - General Motors Co is recalling 50,500 Cadillac SRX luxury crossover vehicles because the performance of the front passenger airbag differs from the owner's manual.

The recall, announced by GM on Friday, affects 47,401 vehicles in the United States and the rest in Canada and Mexico from the 2011 model year. The U.S. automaker said it knew of no crashes, injuries or complaints related to the issue. The SRX and the CTS sedan are the top-selling Cadillac models in the United States this year, both with more than 22,000 sales. SRX sales rose 18 percent in the first five months. GM said the SRX air bags are programed to turn off the right side roof-rail airbag if someone sits in the front passenger seat, but the owner's manual says that airbag will deploy whether or not the seat is occupied. Because the action of the airbag and the manual do not match, that violates federal safety standards. The repair entails only a software reprogramming, GM said. It is an issue only in North America because that is where the automatic occupant sensing system is used; exported models use a manual key to disable the passenger side airbag. The key disable system does not suppress the roof rail airbags. (Reporting by Ben Klayman and Bernie Woodall in Detroit; editing by John Wallace);

Goldman joins disclosure fight over Lehman claims

Fri Jun 10, 2011 7:44pm EDT

http://www.reuters.com/article/2011/06/10/us-lehman-creditors-idUSTRE7596XR20110610

NEW YORK - Goldman Sachs Group Inc ( GS.N ) and other banks fighting for control of Lehman Brothers Holdings Inc's LEHMQ.PK bankruptcy have joined efforts to avoid sharing information about claims against the failed investment bank.

In court papers filed Friday in U.S. Bankruptcy Court in Manhattan, units of Goldman, Morgan Stanley ( MS.N ), Deutsche Bank AG ( DBKGn.DE ) and others said a proposal by a group of Lehman bondholders would go "far beyond" bankruptcy rules. The banks are part of a group proposing a plan to divvy up about $60 billion in the Lehman estate to pay back creditors of the company, which filed the biggest bankruptcy in U.S. history in September 2008. The bondholders, an ad hoc group led by hedge fund Paulson & Co, have filed a competing plan that would yield lower returns for the banks. The bondholders in April were ordered by Judge James Peck, who oversees the bankruptcy, to disclose key points about their roughly $20 billion in claims, including the price paid for those claims. An analysis by the Wall Street Journal found that Paulson's fund, which bought its Lehman debt at a steep discount, could make profits of $350 million to $726 million from the bankruptcy. The bondholders said all parties should be required to meet the same disclosure requirements, a position supported by Lehman. The group in May proposed a uniform standard for anyone trying to influence Lehman's payback plan. But creditors were quick to object, saying insolvency rules require broader disclosure from committees than individual creditors. Among the more than 15 parties who have opposed the disclosures are Bank of America Corp ( BAC.N ), Barclays Plc ( BARC.L ) and the Royal Bank of Canada ( RY.TO ). The latest objections may prove central to the dispute because the Goldman group is a direct competitor to the bondholders in efforts to control Lehman's restructuring. The group has argued that it is loosely affiliated and that its members have separate attorneys, barring it from committee status under disclosure rules. But if disclosure rules do not encompass the banks, other parts of the bankruptcy code should, the bondholders argue. For example, a statutory provision allowing judges broad power to issue orders should be liberally interpreted to give Peck the power to demand disclosures, they say. The Goldman group said "burdensome" disclosure is unnecessary and would discourage creditors from seeking a say in Lehman's reorganization. "Even if some minimal benefit could be articulated, it would be completely outweighed by the chilling effect," the banks said in Friday's filing. Other members of the group to sign on to the objection include Credit Agricole CIB, Credit Suisse International and the Royal Bank of Scotland PLC. Investment funds including Angelo Gordon & Co LP and Serengeti Asset Management LP filed court papers Friday supporting the banks' objection. A Goldman representative declined to comment Friday. Attorneys for Morgan Stanley and Deutsche Bank were not immediately available. A lawyer for Credit Suisse declined to comment, as did a spokesman for the bondholders. The matter is set for hearing before Judge Peck on June 15. The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555. (Editing by Bernard Orr )

Borders staves off closing of six bookstores

Fri Jun 10, 2011 3:21pm EDT

http://www.reuters.com/article/2011/06/10/us-borders-closures-idUSTRE7595TJ20110610

NEW YORK - Bankrupt Borders Group Inc BGPIQ.PK reached agreements to avoid shuttering six of its stores that the bookseller planned to close under the terms of its bankruptcy loan.

Landlords for stores in Boston and Detroit are among those who agreed to give the insolvent bookstore chain more time to decide whether to break or maintain leases on its properties, Borders said in court papers filed Friday in U.S. Bankruptcy Court in Manhattan, Borders told the court on Thursday that it might need to close 51 stores under the terms of a $505 million bankruptcy financing loan from General Electric Co's ( GE.N ) GE Capital. The latest extensions lower that number to 45 stores. The company is working to reach similar extensions with as many of the remaining stores as possible, a Borders spokeswoman said. The salvaged locations include Boston's Logan International Airport, Raleigh-Durham Airport, two locations in Detroit Metro Airport and stores in Westland, Michigan, and Mansfield, Connecticut. The company is also awaiting court approval of an agreed-upon extension for its Mt. Kisco, New York store, according to court documents. Borders had until September 14 to decide whether to keep open more than 400 stores nationwide. Under the terms of its loan, the company either had to extend that deadline or start closing procedures by June 22. It reached earlier extensions on about 360 stores. The latest agreements push the deadline to January 12, 2012. Borders plans a June 16 auction to find a liquidation agent for closing sales at stores where extensions are not reached. Manhattan's Columbus Circle store is one of the locations that still might close. Borders, which helped pioneer the concept of book superstores, fell into bankruptcy in February after years of falling sales, and it has closed 226 stores. The company is trying to find buyers for as many of its remaining stores as possible, and has drawn interest from private equity firms Gores Group and Najafi Cos, according to the Wall Street Journal. The case is In re Borders Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-10614. (Editing by Robert MacMillan )

Auto technology loan program may fall short

Thu Jun 9, 2011 8:28pm EDT

http://www.reuters.com/article/2011/06/10/us-autos-loans-idUSTRE7586QK20110610

WASHINGTON - The government may not be able to extend as much financing as initially planned under a $25 billion loan program aimed at helping auto and other companies make more fuel-efficient vehicles.

The Government Accountability Office (GAO) said in a report on Thursday the Energy Department has exhausted most of the credit subsidy needed to underwrite loans that so far have totaled only a third of available funds. Subsidy costs were higher than anticipated due partly to the "risky financial situation" of companies that received some $8.4 billion in financing since 2009, GAO said. Ford Motor Co received $5.9 billion in loans and Nissan Motor $1.4 billion. Fisker Automotive Inc received $529 million and Tesla Motors Inc got $465 million. Most of the money loaned so far has gone to factory retooling projects aimed at making gasoline engines more efficient. Nissan spent money on its new Leaf electric car. Tesla and Fisker are also investing in electric vehicle technology. The Energy Department is currently considering 16 projects seeking $9.3 billion in loans that would require roughly $3.5 billion in subsidy costs. The credit subsidy balance was originally $7.5 billion. It now stands at $4.2 billion. Chrysler, which is under management control of Fiat SpA, is seeking some $3.5 billion in loans. The company has yet to qualify for financing. General Motors Co, which like Chrysler received a government bailout and restructured in bankruptcy, withdrew its $14 billion loan application this year after deciding to finance advanced technology projects without government help. (Reporting by John Crawley ; Editing by Gary Hill )

Travelers to post loss, slow buybacks after storms

Fri Jun 10, 2011 5:13pm EDT

http://www.reuters.com/article/2011/06/10/us-travelers-idUSTRE75934N20110610

NEW YORK - Devastating tornadoes like the twister that hit Joplin, Missouri, last month will push Travelers Cos Inc ( TRV.N ) to a second-quarter operating loss and force it to slow down share buybacks, the property insurer said on Friday.

The company also warned of worst-case-scenario industry losses on the recent tornadoes in the United States. Travelers is the second major property insurer, after Allstate Corp ( ALL.N ), to warn of at least $1 billion in second-quarter catastrophe losses from the series of deadly twisters. Two companies losing nearly $2.5 billion in less than two months is especially noteworthy, since the entire insurance industry lost $13.6 billion to U.S. catastrophes in all of 2010. Travelers' and Allstate's peers are likely to experience much of the same. MetLife ( MET.N ) said late Friday its auto and home insurance business lost as much as $153 million more than expected in April and May. Travelers shares closed 3.1 percent lower, making them one of the biggest drags on the Dow Jones industrial average .DJI and the second-biggest decliner among S&P insurance shares. Yet one analyst said there was a silver lining in all the catastrophes that could benefit the company. "We think the record level of worldwide catastrophe losses will provide a catalyst for firmer insurance rates, and see (Travelers) well positioned to leverage that trend," said Standard & Poor's equity analyst Cathy Seifert in a research note, maintaining a "strong buy" rating on the company. BUYBACKS AT RISK The global insurance industry has had an unprecedented start to the year. Even without a major hurricane having made landfall, insurers are on track to post their largest catastrophe losses ever, due largely to earthquakes in Japan and New Zealand and a series of once-in-a-century tornadoes. Analysts have said buyback programs across the industry were at risk, after years of heavy share repurchases that were driven by limited catastrophe losses and few other good options to deploy growing cash piles. Analysts polled by Thomson Reuters I/B/E/S had on average expected Travelers to earn $1.29 per share on an operating basis this quarter. Since late April, eight analysts have cut their second-quarter estimates, according to Thomson Reuters data, but all of them still expected a profit. As of Friday, none of the 18 analysts reporting earnings estimates on the company had expected it to lose money this quarter. Travelers has beaten Wall Street's average earnings estimate by at least 20 cents per share for the last three quarters in a row. $1 BILLION LOSS The difference this time is the weather. Travelers said Friday that its after-tax catastrophe losses for April and May were likely to be between $1 billion and $1.05 billion. That is double what the company said it would expect to lose for all catastrophes in an average year, based on its long-term modeling. As a result, the company will buy back less than $250 million in stock in the second quarter. In the first quarter, repurchases topped $1.1 billion. In the second half of the year, Travelers said repurchases would be about $400 million in excess of operating income. As of late January, the company's total authorization for repurchases was $6.5 billion. Travelers shares closed down $1.87 at $59.21. At those levels the stock was at its lowest point in nearly two months. (Reporting by Ben Berkowitz; editing by John Wallace, Dave Zimmerman, Gary Hill )

Lagarde in lead for IMF, South Africa's Manuel opts out

Fri Jun 10, 2011 2:30pm EDT

http://www.reuters.com/article/2011/06/10/us-imf-idUSTRE7591OO20110610

PARIS - South Africa's Trevor Manuel ruled himself out of the race for the IMF's top job on Friday, making French finance minister Christine Lagarde an even firmer favorite, although the threat of a judicial inquiry remains.

Emerging market powers like Russia, India and China say they want an end to Europe's grip on the top job at the international lender, calling time on a pact that puts the IMF in European hands while the World Bank is run by an American. Yet the only realistic rival to Lagarde as the window for nominations draws to a close on Friday is Mexican Central Bank chief Agustin Carstens, whose policy views are seen as too conservative by many of his emerging market peers. Lagarde is backed by the European Union and a handful of smaller countries from Georgia to Mauritius. Paris is hopeful that Washington and Beijing will also stand behind her. Brazil, Latin America's biggest economy, is leaning toward supporting Lagarde but has not yet made up its mind, officials said. Manuel, a respected former South African finance minister, opted not to stand but said it would be "most unfortunate if we end up with a European who is bound by the EU." "It is important to understand that decisions take place in the context of world politics. Against that backdrop, I have decided not to avail myself," Manuel told a news conference. The United States and Europe hold 48 percent of votes at the International Monetary Fund compared with just 12 percent for emerging nations. Manuel, who handled Africa's biggest economy deftly for a decade, had been seen as a strong developing-world candidate. Many had thought he would win more support than Carstens, despite the Mexican's impressive academic profile. In New Delhi to drum up support for his candidacy, Carstens said Mexico and India agreed emerging market countries needed greater representation at the IMF. He also said emerging nations needed to have flexibility on capital controls. Brazil was split between the two candidates and was waiting to see how much support they had from other emerging economies before declaring its support for either, the finance ministry's point person on the issue said on Friday. But three other government officials, speaking off the record, said Brazil was leaning toward Lagarde although the support of other Latin American countries, including Colombia, for Carstens' candidacy has complicated Brazil's decision. LEGAL INQUIRY STILL LOOMS One potential pitfall for Lagarde is a legal investigation into her role in a 2008 arbitration payout. A top French court on Friday put off until July 8 its decision on whether to open a formal inquiry into allegations brought by opposition left-wing deputies that she abused her authority in approving a 285 million-euro payout to a businessman friend of President Nicolas Sarkozy. A French finance ministry official said the legal process was proceeding normally and Lagarde earlier told reporters that she was confident about the outcome. "No, I am not concerned at all about this particular inquiry, and I reaffirm as I did when I put my candidacy and threw my hat in the ring, that there is absolutely no grounds to that inquiry," she told reporters. Lagarde has recently flown to Brazil, India and China and carries on her tour to Saudi Arabia and Egypt this weekend. Lagarde, an adept negotiator with hands-on experience of the euro zone's debt crisis, met African officials in Lisbon. The African Union, whose representatives Lagarde met on Friday, has said it wants to see a non-European in the job but emerging market powers have failed to coalesce behind one candidate to challenge Europe's hold on the job. "Lagarde is still the favorite," said Jacques Reland of the Global Policy Institute. "The BRICS are still quite divided." The Fund -- shaken up by the shock departure of Frenchman Dominique Strauss-Kahn last month over charges that he tried to rape a New York hotel maid -- will name its new managing director by June 30. A Reuters report that Secretary of State Hillary Clinton has been in talks about leaving her job next year to head the World Bank suggested it was even more likely Lagarde will get the IMF job by reaffirming the transatlantic hold over the two institutions. Clinton on Friday said she was not in discussions over the top job at the World Bank and that she was not pursuing the post. "I have had no discussions with anyone, I have evidenced no interest to anyone and I am not pursuing that position," Clinton told reporters while on a visit to Lusaka, Zambia. Four of the IMF's 10 managing directors since 1946 have been French. Lagarde, 55, would be the first woman in the job. A medal-winning former synchronized swimmer and high-flying corporate lawyer, she has played a key role in Europe's battle to recover from economic crisis and is France's Group of 20 negotiator on economic issues as it holds the G20 presidency. Carstens has an economics PhD from the University of Chicago, a haven for proponents of deregulation and laissez-faire economics. (Additional reporting by Thierry Leveque in Paris and Lisbon and Johannesburg bureaux, editing by Mike Peacock)

Glencore chairman caught up in Sino-Forest saga

Fri Jun 10, 2011 3:18am EDT

http://www.reuters.com/article/2011/06/10/us-sino-forest-glencore-idUSTRE7584PL20110610

HONG KONG - Simon Murray, adventurer and outspoken chairman of commodity trader Glencore ( GLEN.L ), is back in the spotlight, this time over his role as a director of Sino-Forest TRE.TO, whose shares have been hit by accusations of fraud.

The company denies allegations made last week by a short seller and research group, Muddy Waters. Sino-Forest has said it may take defamation action and has hired a consultant and an independent committee to investigate the matter. But shares in what was until recently one of the largest forestry companies on the Toronto exchange are down nearly 70 percent since Muddy Waters called the business model a 'ponzi scheme' that had exaggerated the value of its assets. Whether or not the allegations prove to be true, the saga has put Murray back in the headlines, just weeks after his less-than-smooth appointment to the Glencore job and subsequent comments to a British paper about asylum seekers and women, which brought the commodities giant unwelcome attention. Should there be any truth in Muddy Waters' allegations, which include a claim that Sino-Forest overstated its Yunnan timber investments by $900 million, the finger pointing would aim at not just founder and Chairman Allen Chan, but the company's board as well, which includes Murray. "We have to wait to see who is shown to be correct but if Muddy Waters is proved right then it does raise questions about the board's oversight," said Jamie Allen, Secretary General of the Asian Corporate Governance Association. Murray joined Sino-Forest in 1999, becoming an independent director. He is also a non-executive director and major shareholder in its subsidiary Greenheart Group ( 0094.HK ), through his private equity fund GEMS (General Enterprise Management Services International). "I first got to know him in 1995 when he was chairman of the Asia-Pacific branch of Deutsche Bank," Chan was quoted as saying by the Globe & Mail newspaper. "We were very small and we had a short-term loan facility with Deutsche Bank in Hong Kong. Simon was there at the signing ceremony when we signed for a very small loan. He was a very nice guy to support such a small company." A forestry official in Yunnan province indicated that Sino-Forest was a substantial player, though she did not clarify the size of the investment there. "It's not just one plot of land, they have many," said an employee surnamed Chen at the Gengma autonomous region forestry administration office in Yunnan, near the border with Myanmar. "They (the plantations) have been developed step by step, they acquired (the land) bit by bit," she told Reuters by phone. Sino Forest's 2009 annual report cites Murray as one of the parties involved in a "significant" business transaction to acquire 60.3 percent of equity interests in Greenheart in 2007, with an option to acquire the remaining equity interests within 18 months after that. There is no indication that Murray, as a director, was privy to any potentially sensitive business decisions. Chan told the Globe & Mail that Murray's close support was vital to help Sino-Forest drum up credibility and investor interest. "We became friends and when he set up his own fund he called me and said he would interested in investing in our company as a support. I think that was 1999," Chan was quoted as saying. Murray, a former Foreign Legionnaire and a close associate of Hong Kong tycoon Li Ka-shing, did not respond to attempts to reach him by email and telephone. Glencore, which irked some investors by not confirming its appointment of Murray as chairman until eight hours after filing its intention to float, said it had confidence in its choice. "We are happy with Simon Murray as our chairman," a Glencore spokesman said. He declined to comment further on the saga, which comes just weeks after the giant commodities trading and mining group became a listed blue chip company in London and Hong Kong. Murray's credentials have already been questioned by some investors, and he is likely to face direct questioning at Glencore's first quarter results next week, their first earnings release since the listing. Chan, 58, a Hong Kong newspaper columnist and entrepreneur, started the company in the mid-1990s. The company is accused by Muddy Waters of widespread fraud including siphoning off funds and massively exaggerating assets including forestry investments in Yunnan by over $800 million. Sino Forest dismissed the claims as "inaccurate, spurious and defamatory" while stressing its finances had been "thoroughly scrutinized" by auditor, Ernst & Young ERNY.UL. Murray, a seasoned Asia hand, was paid HK$575,000 ($73,900) last year by Sino Forest to act as an independent director. Sino-Forest counts some major North American funds as its investors, including one run by legendary hedge fund investor John Paulson. ($1 = 7.779 Hong Kong Dollars) (Additional reporting by Rachel Armstrong in Singapore, Xavier Ng, Elzio Barreto and Justina Lee in Hong Kong, and Clara Ferreira-Marques in London; Editing by Michael Flaherty and Andrew Callus )

Troubling signs point to more losses

Fri Jun 10, 2011 6:23pm EDT

http://www.reuters.com/article/2011/06/10/us-usa-stocks-weekahead-idUSTRE7596QW20110610

NEW YORK - Don't be surprised if Wall Street racks up a seventh consecutive week of losses as the likelihood of more poor economic data and other disconcerting signals outweigh any thoughts that stocks are cheap.

After closing at its highest level in nearly three years on April 29, the S&P 500 has tumbled nearly 7 percent on the back of a barrage of soft economic data, sparking the debate over whether the economy is headed for a double-dip, or has merely hit a soft patch in its recovery. The benchmark S&P 500 recorded its sixth straight weekly decline on Friday and volume has picked up, as it typically does, on down days. Another week of selling will mark the longest stretch of weekly losses for the index since 2001. Red flags, including ugliness in the junk bond market, options activity and the ease with which support levels have been broken suggest more selling ahead. "You have to be realistic. You've got to have some sort of correction to go into this marketplace just for the healthiness of the market," said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia. As stocks have declined, both investment-grade and high-yield risk premiums in the bond market have slumped as investors sought safe-haven assets. That's troublesome since the stock market often moves in sympathy with the junk bond market because rising borrowing costs crimp corporate profits. The CDX HY16 North America index for high-yield bonds, which conversely falls as risk appetite decreases, closed below par for the first time this year on Wednesday. The CDX IG16 North American investment grade index, which investors use to hedge against bond losses, hit its highest level since November 30, according to Tradeweb. In another signal of skittishness about the market's footing, Ally Financial, an auto and mortgage lender majority owned by the U.S. government, delayed a $6 billion IPO due to bad market conditions, two sources familiar with the situation told Reuters. DATA BLITZ AND QUADRUPLE WITCH Stocks have also been easily passing through technical support levels, with the S&P 500 most recently taking out the April 18th low of 1,294.70, leaving analysts to eye the 1,250 level as the next area of support. And the daily volume put/call ratio for equity options on the Chicago Board Options Exchange (CBOE) hit an 18-month high on Wednesday, indicating that investors are significantly bearish on the stock market. On top of all that, data expected for next week, including the Producer Price Index, the Consumer Price Index, May retail sales, manufacturing surveys for New York and Philadelphia as well as the index of leading indicators of economic activity are forecast to mostly show a struggling economy. "It is a busy economic week, so we expect the market to both anticipate economic data and to react to the releases -- I don't necessarily see anything good coming out of the economic releases next week," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. Several of these indicators set off the first alarm bells about the economy's health when they came out a month ago. By the end of the week, investors will also grapple with quadruple witching, when the options for stock-index futures, single-stock futures, equity options and stock-index options for June expire. "This trade will lead to increased volume and the possibility of big moves in the market. Expiration also has the potential for increased volatility, especially intraday volatility next week," said TD Ameritrade chief derivatives strategist Joe Kinahan. NOT ALL SIGNS POINT DOWN But even with the heavy losses suffered recently, the CBOE Volatility index has remained relatively unchanged, indicating market participants have yet to push the panic button. "During this entire correction, the VIX hasn't budged much," said Jason Goepfert, president of sentimenTrader.com, in a report. "That could be a sign of complacency among traders, but historically a stock market correction without a spike in the VIX has been a better 'buy' signal than 'sell' signal." However, a turnaround in stocks could be stoked by any sign of progress in Washington on the debt ceiling and budget debates, an overhang on stocks that has frustrated market participants. "The biggest thing on the horizon right now is the inability of the U.S. Congress to come to some sort of conclusion over a budget," Draughn said. "Once that happens, that kinds of frees Bernanke's hands to where if he needs to do monetary intervention, he can. But he essentially is handcuffed at this point, due to the fact that the Treasury is happy to restrict the amount of bonds being issued for bumping up to the debt limit." (Reporting by Chuck Mikolajczak; Additional reporting by Doris Frankel and IFR analyst Rachelle Horn; Editing by Jan Paschal )

Germany says private role in Greek deal "unavoidable"

Fri Jun 10, 2011 7:46am EDT

http://www.reuters.com/article/2011/06/10/us-greece-germany-idUSTRE7591D920110610

BERLIN - German Finance Minister Wolfgang Schaeuble urged parliament on Friday to back additional aid for Greece but said private creditor participation in a new package for the heavily indebted euro zone member was "unavoidable."

In a speech to the Bundestag two weeks before EU leaders are due to meet in Brussels to finalize a new rescue for Greece that officials say will total 120 billion euros, Schaeuble warned of disastrous consequences if aid was not forthcoming and the country was pushed into a disorderly default. But in prodding skeptical lawmakers to support more assistance, he also laid out strict German conditions for a deal, saying Greece must make far-reaching reforms and that banks that hold the country's bonds should share the pain. "If there are doubts about the ability of Greece to pay back its debt and we must win time with a new package, then the participation of the private sector in the solution is unavoidable," Schaeuble said. Schaeuble's stance puts Germany on a potential collision course with the European Central Bank, which said on Thursday it opposed any form of private creditor participation that was not "purely voluntary." "I proposed a swap of Greek bonds that would lead to a lengthening of the maturities by seven years while maintaining the existing interest rate conditions," Schaeuble said, in reference to a letter he sent to euro zone partners this week. "This would give Greece the necessary time to carry out reforms and win back confidence. It would limit the risks of a negative market reaction, establish fair burden-sharing between taxpayers and the private sector and send a clear signal to all that losses cannot be pushed onto taxpayers alone." Ratings agencies warned on Thursday it might be impossible to conduct such a swap on a voluntary basis. Schaeuble acknowledged the ECB was opposed to his ideas for involving private creditors, but said he and his euro zone colleagues had agreed to set up a working group that would work on a solution that avoided negative market consequences. He said the ECB, International Monetary Fund and European Commission would participate. (Additional reporting by Erik Kirschbaum and Christiaan Hetzner ) (Writing by Noah Barkin ; Editing by John Stonestreet)

Scenarios: Deficit set to shrink, despite slowdown fears

Fri Jun 10, 2011 7:47pm EDT

http://www.reuters.com/article/2011/06/10/us-usa-deficit-scenarios-idUSTRE7596YM20110610

WASHINGTON - The United States is grappling with a budget deficit set to top $1 trillion this year, but economists are confident that it won't get worse and is likely to start narrowing.

Despite a recent slowing of the U.S. economy, which means less tax revenues, and deadlocked budget talks in Congress, economists are not raising their forecasts for the shortfall. That is largely because stronger-than-expected economic growth at the end of 2010 gave a boost to tax revenues at the start of this year. If the recovery returns to something like its expected pace in the coming months, as many economists expect, the deficit could close the fiscal year ending September 2011 below the official forecast of $1.4 trillion. Below are two scenarios for how the U.S. fiscal situation might evolve in the remainder of 2011 and in 2012, plus an estimate of what very slow growth might mean for the deficit this year and next. GROWTH RECOVERS: DEFICIT EDGES DOWN Most likely scenario 2011 GDP 3.0 pct $1.2 trillion deficit 2012 GDP 3.5 pct $900 billion deficit The most likely scenario remains for the deficit to fall below official projections in 2011 and 2012, and even if the slowdown in growth proves more protracted than expected, the deficit should do no worse than stabilize near current levels. Tax revenues in April and May were helped by a pickup in the economic recovery at the end of 2010 and some of the U.S. government's fiscal stimulus measures are starting to expire. Current trends suggest the deficit in the fiscal year 2011 will come in closer to $1.2 trillion. That improvement, plus expectations among many economists that the slowdown in U.S. growth in recent months will be short-lived, mean the deficit for the fiscal year ending September 2012 is likely to come in below some of the most pessimistic forecasts, too, and could come in below $900 billion. GROWTH STAYS SLUGGISH: 2012 DEFICIT STABILIZES 2011 GDP 2.0 pct $1.22 trillion deficit 2012 GDP 2.0 pct $1.1 trillion deficit If the U.S. economy stays stuck at its current growth rate of around 2 percent, the budget deficit is likely to come in close to the Congressional Budget Office's projection of $1.1 trillion in 2012, assuming there are no policy changes. If there is no significant employment growth by the end of 2011, pressure to extend the 2011 payroll tax holiday for another year will grow. That could add close to $100 billion to the 2012 deficit although Republicans are likely to push hard for offsetting spending cuts. It seems likely some further cuts in spending will be forced by the Republicans as the price for an increase in the debt limit, and while lower spending will restrain growth in the short term, the spending reductions will outweigh the revenue losses in the deficit arithmetic -- meaning a net reduction in the deficit. If growth stays near 2.0 percent, unemployment may fail to fall from its current 9.1 percent level, though total spending on unemployment benefits may decline if lawmakers no longer extend benefits to the longer-term jobless. If there is no deal to increase the debt limit, any further revenue losses from an economic slowdown would have to be met with spending cuts to prevent an increase in the deficit. GROWTH SLUMPS: DEFICIT STAYS HIGH 2011 1 pct GDP $1.25 trillion deficit 2012 1 pct GDP $1.25 trillion deficit -- Please note that the GDP forecasts are for the year ending in December, but the budget forecasts are for the fiscal year ending in September. (Writing by David Sloan, an economist with IFR Economics; Editing by William Schomberg and Jan Paschal )

Goldman joins disclosure fight over Lehman claims

Fri Jun 10, 2011 2:18pm EDT

http://www.reuters.com/article/2011/06/10/us-lehman-creditors-idUSTRE7595AY20110610

NEW YORK - Goldman Sachs Group Inc ( GS.N ) and other banks fighting for control of Lehman Brothers Holdings Inc's LEHMQ.PK bankruptcy have joined efforts to avoid sharing information about claims against the failed investment bank.

In court papers filed Friday in U.S. Bankruptcy Court in Manhattan, units of Goldman, Morgan Stanley ( MS.N ), Deutsche Bank AG ( DBKGn.DE ) and others said a proposal by a group of Lehman bondholders would go "far beyond" bankruptcy rules. The banks are part of a group proposing a plan to divvy up about $60 billion in the Lehman estate to pay back creditors of the company, which filed the biggest bankruptcy in U.S. history in September 2008. The bondholders, an ad hoc group led by hedge fund Paulson & Co, have filed a competing plan that would yield lower returns for the banks. The bondholders in April were ordered by Judge James Peck, who oversees the bankruptcy, to disclose key points about their roughly $20 billion in claims, including the price paid for those claims. An analysis by the Wall Street Journal found that Paulson's fund, which bought its Lehman debt at a steep discount, could make profits of $350 million to $726 million from the bankruptcy. The bondholders said all parties should be required to meet the same disclosure requirements, proposing in May a uniform standard for anyone trying to influence Lehman's payback plan. But creditors were quick to object, saying insolvency rules require broader disclosure from committees than individual creditors. Among the more than 15 parties who have opposed the disclosures are Bank of America Corp ( BAC.N ), Barclays Plc ( BARC.L ) and the Royal Bank of Canada ( RY.TO ). The latest objections may prove central to the dispute because the Goldman group is a direct competitor to the bondholders in efforts to control Lehman's restructuring. The group has argued that it is loosely affiliated and that its members have separate attorneys, barring it from committee status under disclosure rules. But if disclosure rules do not encompass the banks, other parts of the bankruptcy code should, the bondholders argue. For example, a statutory provision allowing judges broad power to issue orders should be liberally interpreted to give Peck the power to demand disclosures, they say. The Goldman group said "burdensome" disclosure is unnecessary and would discourage creditors from seeking a say in Lehman's reorganization. "Even if some minimal benefit could be articulated, it would be completely outweighed by the chilling effect," the banks said in Friday's filing. Other members of the group to sign on to the objection include Credit Agricole CIB, Credit Suisse International and the Royal Bank of Scotland PLC. Investment funds including Angelo Gordon & Co LP and Serengeti Asset Management LP filed court papers Friday supporting the banks' objection. A Goldman representative and a company attorney were not immediately available for comment. Attorneys for Morgan Stanley and Deutsche Bank also were not immediately available. A lawyer for Credit Suisse declined to comment, as did a spokesman for the bondholders. The matter is set for hearing before Judge Peck on June 15. The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

Boeing eyes aluminum hedging amid market volatility

Fri Jun 10, 2011 5:11pm EDT

http://www.reuters.com/article/2011/06/10/us-aluminum-boeing-idUSTRE7596F020110610

NEW YORK - Boeing Co ( BA.N ) may decide within the next year to begin hedging aluminum prices on the London Metals Exchange (LME) in order to reduce volatility in its costs, a senior executive said on Friday.

If initiated, the company intends to use the new hedging program on its long-term agreements, John Byrne, an executive with the company's commercial airplanes unit, told Reuters. "Given the volatility, it's hard to tie down firm fixed pricing, so we have been looking at what are the different options to bring a little bit more stability into that pricing component ... hedging the LME was one of the options we have been studying," he said. "Within the next year was probably a reasonable time frame that we might use that option." Boeing's consideration of hedging was triggered by a sharp rally in the benchmark LME aluminum contract this year. Just last month, the metal surged to $2,803 per tonne, its priciest since August 2008. Byrne said the company preferred to maintain its long-term agreements with its suppliers, but when necessary could venture into the spot market. "You always have emergent demand come up and 95 plus percent of the time we can meet those through our existing agreements, but there will be unique situations where we will need to go to the spot market," he said. "What we are trying to do is get that option configured so should it be something we would want to do, we have it available to us." Byrne estimated that his division will secure about 150,000,000 lbs of flat-rolled aluminum products in 2012. (Reporting by Chris Kelly; Editing by Alden Bentley )

Nokia seen posting quarterly loss as troubles mount

Fri Jun 10, 2011 9:43am EDT

http://www.reuters.com/article/2011/06/10/us-nokia-idUSTRE75918820110610

TALLINN - Nokia was expected to report a loss for this quarter and next as it cuts prices to try to prevent more customers defecting to rivals' smartphones, a Reuters poll found.

Analysts also forecast a meager profit in the normally buoyant fourth quarter, as the once-undisputed leader in mobile phones loses the initiative to smartphones like Apple's iPhone and devices based on Google's Android software. At the low end of the phone market, Nokia has been losing share rapidly to cheaper Asian rivals, and it said last week it would miss sales and profit targets, blaming tough competition in China and Europe. Analysts now expect the company to report a second-quarter loss of 0.04 euro per share and a loss of 0.05 euro for the third. They have also lowered their core EPS outlook for 2012 and 2013. "We believe the new guidance ... is a strong indication that our worst-case scenario for the company, of accelerating market share and gross margin decline, is crystallizing," Bernstein analyst Pierre Ferragu said in a research note. "The announcement confirms our view that the Nokia brand is at risk of losing visibility and that the opportunity to create a third ecosystem based on Windows Phone is rapidly vanishing." Nokia has thrown in its lot with Microsoft, with whom it will co-develop its next generation of smartphones. It hopes to gain the kind of attention Apple and Google have attracted from software developers who enrich their devices. Nokia's market value has halved to 17 billion euros ($25 billion) since it unveiled the Microsoft move in February. DIVIDEND RELIC In February, Nokia also unveiled a new bonus-package directly linked to its share price for chief executive Stephen Elop, hired last September from Microsoft to turn the company's fortunes. "To me, that was a gamechanger. He gets paid as I will as a shareholder," said Renny Ponvert, chief executive of top leaders skills research firm Management CV Inc. Nokia has historically paid out high dividends compared with many technology companies who often prefer to invest the money in further growth. On average, analysts expected Nokia to pay out more than its underlying earnings for 2011. "High dividend is a bit of the leftover from old management thinking. I do not think anybody thinks it is a yield play. It is a turnaround play," Ponvert said. The average view of Nokia's dividend for 2011 has dropped to 0.20 euro from the 0.36 euro seen in mid-April, with two analysts now forecasting Nokia would not pay out any dividend this year or next. (Editing by Dan Lalor)

Morgan Stanley, China partner launch brokerage JV

Thu Jun 9, 2011 11:49pm EDT

http://www.reuters.com/article/2011/06/10/us-morganstanley-china-idUSTRE7590CN20110610

SHANGHAI - Morgan Stanley ( MS.N ) and its China partner Huaxin Securities launched their joint venture on Friday, joining several other rivals looking to cash in on the country's booming investment banking business.

The newly established firm will be named Morgan Stanley Huaxin Securities, the two partners said in a joint statement. Morgan Stanley will own a one-third stake in the joint venture, the maximum permissible under Chinese law, while Huaxin will own the rest. The registered capital of the joint venture will be 1.02 billion yuan ($157.5 million). Eight foreign banks including UBS AG ( UBSN.VX ), Goldman Sachs ( GS.N ) and Deutsche Bank ( DBKGn.DE ) have now established securities ventures in China, while more are expected to follow. China was the world's top initial public offering market last year with a record $70 billion in IPO proceeds compared with just $9.5 billion in 2008, according to Thomson Reuters data. China's IPO market, which last year accounted for about 27 percent of global volumes, is currently dominated by local securities firms such as Citic Securities ( 600030.SS ) and Ping An Securities. The country's bond market has grown three-fold from 2008 to 2010 when it stood at $449 billion. China has launched a Nasdaq-style start-up board for growth companies and plans to set up an international board as soon as this year to allow domestic listings by foreign companies such as HSBC Holdings Plc ( HSBA.L ). Citigroup ( C.N ) said last week it had signed an agreement with Shanghai-based Orient Securities Co, allowing it to launch a securities joint venture. Wang Wenxue, chairman of Huaxin Securities, has been appointed chairman of Morgan Stanley Huaxin Securities, and Yang Kai, a managing director of Morgan Stanley, as chief executive officer. Morgan Stanley was an early entrant into China when it and other Chinese and international financial firms formed China International Capital Corp (CICC) in 1995. The U.S. investment bank spent only $37 million for its stake in the JV. After expressing interest in setting up another China JV, it sold its 34.3 percent stake last year to a group of investors including KKR & Co ( KKR.N ), TPG Capital TPG.UL and Singapore's sovereign wealth fund GIC GIC.UL for a pre-tax gain of about $700 million. China's securities rules forbid foreign companies from having more than one joint venture at a time in the country. (Reporting by Soo Ai Peng; Writing by Kazunori Takada; Editing by Jacqueline Wong)

Toyota forecasts 35 percent profit slide after quake

Fri Jun 10, 2011 7:59am EDT

http://www.reuters.com/article/2011/06/10/us-toyota-idUSTRE7590GC20110610

TOKYO - Toyota Motor Corp forecast a larger-than-expected 35 percent fall in annual profit on Friday and warned that the strong yen was making it difficult to justify keeping production in Japan.

Toyota has struggled to restore output after a massive 9.0 earthquake in March rocked northeastern Japan and forced automakers to slash output. The ensuing nuclear disaster and power shortages have compounded their woes. The production disruption will likely see Toyota lose its title as the world's largest automaker this year. "This is probably another conservative estimate from Toyota, but it's predicting a loss in the fiscal first half so we can tell how serious the damage from the earthquake was," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments in Tokyo, adding that shares in the company may fall on Monday. Toyota reiterated its plan to restore output to pre-quake levels by November, helped by a recovery in the supply chain for key parts, and expressed confidence it could claw back market share lost as a result of the quake. In an encouraging sign for automakers, chipmaker Renesas Electronics Corp said on Friday it now expected to restore supply capacity lost due to quake damage by the end of September, one month earlier than previously planned. Renesas, the world's biggest maker of microcontrollers, had become one of the biggest bottlenecks in the automotive supply chain that forced car firms to curb production. "Once our product supply is back to normal, we can compete with no problem. We have the resources and are fully charged," Toyota Chief Financial Officer Satoshi Ozawa said at a briefing in Tokyo. But Ozawa warned that Toyota was getting hammered by the strong yen and called on the Japanese government to take action to rein it in. The Japanese currency hit a one-month high against the dollar this week and is now about 5 yen stronger than the 85 per dollar level that Toyota sees as the break-even point for profiting on production in Japan. STRUCTURAL WEAKNESS Toyota said it expects operating profit to fall 35 percent to 300 billion yen ($3.7 billion) in the financial year to March 2012, well short of the consensus for a 434 billion yen profit in a poll of 23 forecasts by Thomson Reuters I/B/E/S. The forecast, which the company would have announced in May along with its annual results if not for the earthquake, incorporates a 100 billion yen negative impact from the strong yen. "Structural weakness remains for Toyota, as it has a higher portion of domestic production than Honda and Nissan, which makes it vulnerable to the yen's strength," said Park Sang-Won, an analyst at Eugene Investment & Securities in Seoul. Toyota forecast global sales would fall 1 percent to 7.24 million vehicles in the year to March. The figures include sales at truck maker Hino Motors Ltd and compact car maker Daihatsu Motor Co. The drop is expected to place Toyota behind General Motors and possibly Volkswagen AG in the global vehicle sales rankings this year, and reflects a loss of share to smaller rivals such as South Korea's Hyundai Motor Co, which has been nipping at its heels for years. Toyota played down the possibility. "We don't see it as necessary to be the largest automaker in the world," Ozawa said. "The most important thing is creating a stable business base." Toyota said on Friday it expects the dollar to average 82 yen in the current financial year to next March 31, against an average currency rate of 86 yen per dollar last year. The yen's persistent strength has raised questions about the rationale of Toyota's commitment to producing at least 3 million cars in Japan each year. Ozawa said it was possible that Toyota President Akio Toyoda was rethinking his position. "We are in a situation where it's becoming impossible for Japan's manufacturing industry to do business," Ozawa said. "Our president has been saying that he would never want to see Japan's manufacturing fading from view, but he also said recently that he was unable to respond when someone made the comment that Toyota's production should not be handled only in Japan." Toyota's shares have fallen 7.5 percent since the disaster, underperforming the benchmark Nikkei 225 average, which has lost 6.5 percent. Its shares on Friday rose 0.9 percent to close at 3,300 yen before the company released the profit forecast. (Editing by Matt Driskill and Edmund Klamann)

Toyota sees 35 percent profit slump after quake

Fri Jun 10, 2011 7:51am EDT

http://www.reuters.com/article/2011/06/10/us-toyota-instantview-idUSTRE75915Q20110610

TOKYO - Toyota Motor Corp said on Friday it expects operating profit this business year to fall 35 percent to 300 billion yen ($3.7 billion) after Japan's biggest earthquake on record severely disrupted car production and slashed sales.

KEY POINTS: -- Toyota's operating profit forecast is far below the consensus of 434 billion yen in a survey of 23 analysts by Thomson Reuters I/B/E/S. -- Toyota incorporated a 100 billion yen negative impact from foreign exchange rates into its operating profit forecast. -- The company is assuming an average dollar/yen exchange rate of 82 yen this financial year. -- It forecasts sales to slip to 7.24 million vehicles from 7.3 million units the previous year. COMMENTARY: YOSHIHIKO TABEI, CHIEF ANALYST AT KAZAKA SECURITIES, TOKYO "The forecast is lower than market expectations and may be the result of incentives or leasing, but nonetheless it isn't really negative because (the outlook) makes clear a lot that was uncertain and that should bolster the shares. "Production of parts and vehicles is recovering and if there is an upswing in global demand, the company will probably beat its forecast." KAZUYUKI MURAI, CHIEF INVESTMENT OFFICER, PLAZA ASSET MANAGEMENT, TOKYO "Based on what the company has been saying, this is just what was expected. Toyota always makes conservative estimates. But it has its own problems (after the recall crisis). "I expect Toyota shares to recover only in line with the overall market. Toyota is in a period of restructuring its production structure after years of expansion. It is still not equipped with the ability to deal with rising demand in emerging markets. It's not that I'm worried about their future. But I think Toyota will be in for a sluggish period." KOICHI OGAWA, CHIEF PORTFOLIO MANAGER, DAIWA SB INVESTMENTS, TOKYO "This is probably another conservative estimate from Toyota, but it's predicting a loss in the fiscal first half so we can tell how serious the damage from the earthquake was. "Toyota shares have been rising recently so the stock may fall on Monday as investors react to the forecast, even though they know it's a conservative figure." MAKOTO KIKUCHI, CEO OF MYOJO ASSET MANAGEMENT, TOKYO "Toyota's announcement offered little surprise since that (300 billion yen in operating profit) somewhat falls in the lower end of the range sell-side analysts had been expecting." PARK SANG-WON, ANALYST, EUGENE INVESTMENT & SECURITIES, SEOUL "There is no change in Toyota's product competitiveness despite the earthquake. The quake rather offered the opportunity for Toyota to review and fix its quality control system while idling its plants. "But structural weakness remains for Toyota, as it has a higher portion of domestic production than Honda and Nissan, which makes it vulnerable to the yen's strength." BACKGROUND: -- Toyota said last month that the March earthquake contributed to a 52 percent fall in profit during the January-March quarter, but it delayed unveiling its annual forecasts as it weighed impact of the disaster on consumption and its supply chain. -- The massive disruption to production will almost certainly mean Toyota will fall behind General Motors Co and possibly Volkswagen AG to rank third in global vehicle sales this year. -- Shares of Toyota have fallen 7.5 percent since the March earthquake, underperforming a 6.5 percent fall in the benchmark Nikkei. The stock ended up 0.9 percent at 3,300 yen before the company announced its forecast on Friday. (Reporting by Mariko Katsumura and Nathan Layne ; additional reporting by Daiki Iga, Hideyuki Sano, Junko Fujita and Ayai Tomisawa in Tokyo, and Hyunjoo Jin in Seoul; Editing by Chris Gallagher )

Lagarde says relaxed, confident over probe threat

Fri Jun 10, 2011 10:08am EDT

http://www.reuters.com/article/2011/06/10/us-imf-lagarde-idUSTRE7591WS20110610

LISBON - French Finance Minister Christine Lagarde said she has no concerns about a judicial inquiry hanging over her candidacy to head the International Monetary Fund.

"I reaffirm as I did when I put my candidacy and threw my hat in the ring, that there is absolutely no ground to that inquiry," she told reporters in Lisbon. "I feel extremely confident and relaxed about it." A French court put off earlier on Friday until July 8 a decision on whether to open a formal inquiry into claims by opposition lawmakers that Lagarde abused her authority in approving a 285 million euro payout to a businessman friend of President Nicolas Sarkozy. Lagarde -- the front-runner for the IMF post and one of only two declared nominees as the window draws to a close on Friday -- also said she was a candidate representing all fund members. (Reporting by Carolyn Cohn ; Writing by John Stonestreet)

Ally Financial delaying $6 billion IPO: sources

Fri Jun 10, 2011 12:17am EDT

http://www.reuters.com/article/2011/06/10/us-allyfinancial-ipo-idUSTRE7590P420110610

NEW YORK - Ally Financial, an auto and mortgage lender majority owned by the U.S. government, is delaying a $6 billion IPO due to bad market conditions, two sources familiar with the situation told Reuters.

The roadshow for the initial public offering was expected to launch late this week or early next week, which would have brought the company public before the U.S. July 4 holiday. The S&P 500 index .SPX closed up 0.74 percent at 1,289 on Thursday, but had lost more than 6 percent in the last six days while Nasdaq had nearly erased its gains for the year. Ally Financial's IPO is expected to raise around $6 billion, including both common stock and convertible securities, one of the sources said. It will move ahead when the market improves, that source said. The other source said that the IPO could now come in late July or early August, or after the September U.S. Labor Day holiday. The sources declined to be named as the information is not public. Ally and the U.S. Treasury declined comment. Bad mortgage loans forced the U.S. Treasury to pour $17.2 billion into Ally during the financial crisis. It has recovered some of that money through repayments and dividends and continues to hold a 73.8 percent stake in Ally, formerly known as GMAC. The U.S. government is currently in the process of exiting other remaining financial crisis-era investments including GM and AIG. It began exiting top U.S. automaker General Motors Co ( GM.N ) with a record $23.1 billion IPO last November. In May, it sold 15 percent of its stake in insurer American International Group Inc ( AIG.N ). GM shares closed on Thursday at $29.45, or 10.8 percent below their $33 IPO price. AIG's shares have also retreated since its $8.7 billion share sale. That sale raised less than the $10 billion to $20 billion some banking sources had suggested earlier in the year. Apart from the Treasury, Ally's stockholders include private equity firm Cerberus Capital Management, with a 9 percent stake, and GM, which owns 4 percent directly and 6 percent through a trust. Citi, Goldman Sachs, JPMorgan, Morgan Stanley, Barclays Capital and Deutsche Bank Securities are the underwriters on the IPO. (Reporting by Clare Baldwin and Paritosh Bansal; editing by Carol Bishopric, Bernard Orr )

Fed prepares for last spurt of easy money flood

Fri Jun 10, 2011 4:11pm EDT

http://www.reuters.com/article/2011/06/10/us-usa-fed-qe-idUSTRE7594MT20110610

NEW YORK - The flood of Federal Reserve money that has supported Wall Street and the rest of the U.S. economy for 2-1/2 years will shrink to a trickle with the conclusion of the Fed's bond purchases announced on Friday.

The Fed said it will buy $50 billion of Treasuries, the final series of government bond purchases that marks the last phase of the $600 billion program it launched in November 2010 to prevent another recession. As a result, once the purchases are concluded on June 30, the financial sector will receive only a fraction of the roughly $100 billion a month in easy money it has been getting from the Fed. The conclusion of the Fed's bond-buying program, known as "Quantitative Easing 2," does not mean the stimulus will come to a complete stop. The Fed will reinvest maturing securities, mainly mortgage-related debt, which analysts predict will run at $12 billion to $16 billion per month. "From a psychological standpoint, it is important for the market to still feel the constant presence of the Fed," said Ralph Axel, interest rate strategist at Bank of America Merrill Lynch in New York. This gradual approach to unwind policy support is likely needed given investor anxiety over a slowing U.S. economy and the festering public fiscal problem in Europe. While still a lot of money, it is a huge step down from stimulus levels at the height of the buying campaign, dubbed by markets as QE2 because it was the second round of Fed asset-buying in the wake of the 2008 financial crisis. A key aim of QE2 was to hold down long-term interest rates to stimulate investment in capital equipment and risky assets. It came almost eight months after the Fed's first round of bond purchases, primarily in mortgage-related securities. The initial bout of quantitative easing, worth $1.73 trillion, began in December 2008 and ended in March 2010. It was created to stabilize the housing sector, which was the epicenter of the financial turmoil and has yet to show signs of recovery. The Treasury bond component of the first round of purchases totaled $300 billion, from March to October 2009. The Fed's buying assets has been controversial from the start. Critics say it is tantamount to printing money, and it has been credited with fueling a stock market rally but blamed for a surge in oil and food prices. The end of QE2 has been well-flagged. The Fed said at the outset it would run until the end of June 2011. Still, investors expect stocks, bonds, gold and the euro to fall after it ends, according to a Reuters poll of 64 analysts and fund managers last month. HOUSING WOES Come July, the Fed will rely on cash generated from its $1 trillion holding of mortgage-related securities to anchor Treasury yields and support the economy. Proceeds from Fed's maturing mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) will fluctuate monthly depending on house sales and mortgage refinancings. Recent evidence suggested the real estate conditions are deteriorating again with single-home home prices dropping below their 2009 low in March. The double-dip in housing will likely be compounded by an abrupt slowdown in job growth in May. This grim development portends that a housing recovery is farther than previously thought and would take longer for people to sell their homes and to pay off their mortgages. This means mortgage securities will not be prepaid quickly. "We are still at least two to three years away from seeing signs of even a baby upturn in home prices," said Anthony Karydakis, senior economist at Commerzbank in New York. Going back to the 1950s, housing starts have typically returned to their pre-recession levels in 1-1/2 to 2 years after they hit bottom. But the current housing market is showing "atypical" behavior since its euphoric highs earlier this decade, Karydakis said. Housing starts are stagnant after 1-1/2 years into the current economic recovery and more than a year since the initial bout of bond purchases. They had enjoyed a brief revival due to a federal first-time homebuyer credit program. "Housing starts have stabilized at very low levels, but there have been no signs of a recovery," Karydakis said. In April, housing starts fell 10.6 percent to an annualized rate of 523,000 units. (Additional reporting by Burton Frierson and Chris Reese ; Editing by Diane Craft )

Swiss in talks with U.S. over untaxed funds

Fri Jun 10, 2011 7:05am EDT

http://www.reuters.com/article/2011/06/10/us-swiss-tax-talks-idUSTRE7591XP20110610

ZURICH - Swiss and U.S. authorities have held informal exploratory talks that touched on regularizing untaxed money held by wealthy Americans in secret Alpine accounts, a spokesman for a finance ministry office said.

U.S. officials have said they are investigating other banks after UBS paid $780 million in 2009 to settle tax evasion charges. In an article on June 9, sources told Reuters the U.S. and Switzerland were in advanced talks on a multibillion dollar deal that would let several Swiss and European banks join a common settlement to avoid potential U.S. prosecution. The announcement of a settlement could come as early as July, the sources said. Mario Tuor, spokesman for the State Secretariat for International Financial Matters (SIF), said on Friday the two sides had exchanged ideas but that he could not confirm the July date, whether the two sides were eyeing a multi-bank solution, or any other details mentioned in the article. "There were several sets of talks, one of which was on the sidelines of the IMF's spring meeting and was about the FATCA, though ideas were also exchanged about finding a solution for the past," he said. The Foreign Account Tax Compliance Act (FATCA) is a U.S. bill adopted in March 2010 that forces non-U.S. banks to automatically share a vast amount of information regarding the bank dealings of their U.S. clients. With state coffers strained by the financial crisis, Switzerland has come into the crosshairs of tax authorities in Italy, Britain and Germany, as well as the U.S., which all suspect their citizens of stashing money in Swiss accounts to avoid taxes. In 2009 Berne agreed to hand over to Washington bank data relating to 4,450 clients of UBS, piercing a hole in Swiss bank secrecy laws. The U.S. Department of Justice continues to go aggressively after U.S. citizens who have hidden assets abroad, with a senior U.S. Internal Revenue Service figure saying this month the authority was about to probe at least one bank. (Editing by David Hulmes)

Fed expanding capital tests for banks

Fri Jun 10, 2011 4:36pm EDT

http://www.reuters.com/article/2011/06/10/us-financial-regulation-fed-idUSTRE7594S820110610

WASHINGTON/CHARLOTTE, North Carolina - The Federal Reserve will subject more banks to annual stress tests to determine whether they have enough capital and can raise their dividends.

On Friday, the Fed said it is proposing that banks with $50 billion or more in assets be subjected to the capital testing regime, bringing the number of banks that would face annual tests, if they were conducted today, to 35 from a prior level of 19. Among the banks that would now fall under the testing regime, based on Fed data through March 31, are Northern Trust Corp, M&T Bank Corp, Discover Financial Services and Comerica Inc. The tests seek to determine how a large bank whose failure could hurt the economy and markets would weather a financial shock or an economic downturn. "Institutions would be expected to have credible plans to have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions," the Fed said in a release. Bank stocks, already under pressure, finished the day down 0.4 percent on Friday after being down by about 2 percent earlier in the day, as measured by the KBW Bank Index of large-cap financials. Some of the biggest decliners were regional bank stocks that are now going to face annual tests. The test has real consequences for banks and their investors. Following the end of the latest review in March, banks such as JPMorgan Chase & Co and Wells Fargo & Co were able to announce plans to boost their dividends, while Bank of America Corp was not. "It's an incremental negative that makes it easier to be negative and sell any financial stocks right now," Michael James, a senior trader at regional investment bank Wedbush Morgan in Los Angeles, said in reference to the Fed proposal. "The financial stocks have been a big weight and an underperformer all year, so the path of least resistance in the financials continues to be lower, and this won't help that." Frederick Cannon, bank analyst at Keefe, Bruyette & Woods, wrote in a note to clients that the Fed proposal should not have a big impact on the banks that will now be subject to the capital tests. He said these banks have been expecting their capital to come under greater scrutiny from regulators and the impact of the tests "should be limited and may only cause small delays of capital deployment if planned for the near term." The biggest challenge facing the new banks on the capital test list is they have different business models than the largest institutions and will have fewer ways to raise capital if the Fed says they need to do so, some analysts said. "These banks don't have investment banking or capital markets for growth to fall back on," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc. "A lot of these guys have big real estate and commercial real estate exposures. This is going to make loan growth very difficult, not be a catalyst for it." Determining exactly how the Fed capital tests will impact individual banks can be hard to gauge because the agency does not release specifics about how the tests are conducted or the results, said Christopher Whalen, senior vice president and managing director at research firm Institutional Risk Analytics. "They have been completely opaque and there is no way of benchmarking or verifying what anyone is doing," he said. During the 2007-2009 financial crisis, the government was forced to extend substantial support to banks such as Citigroup Inc, and the tests are one of several measures taken by regulators to help prevent the United States from having to make future bailouts. The new Dodd-Frank law requires a set of stress tests for banks, some performed by banks and others directly by regulators, to ensure they can survive a steep downturn in financial markets. The Fed said the expanded capital tests are intended to complement the stress tests required by Dodd-Frank. The amount of information banks would have to provide the Fed for the capital tests would depend on the size and complexity of the institution, the Fed said. The rule is expected to be finalized later this year and the new round of reviews is planned for early 2012. The proposal will be out for comment through August 5. (Reporting by Dave Clarke in Washington and Joe Rauch in Charlotte, North Carolina; additional reporting by Dan Wilchins in New York; editing by Gerald E. McCormick, Andre Grenon , Gary Hill )